Fundamental pick: Why analyst Prabhudas Lilladher is bullish on Indraprastha Gas Ltd

By: | Published: September 29, 2016 1:42 PM

Brokerage House Prabhudas Lilladher has revised its 'Accumulate' rating to 'Buy' with target price of Rs 1,080 as it expects IGL to sustain healthy margin trend led by benign domestic gas price outlook.

 Why analyst Prabhudas Lilladher is bullish on Indraprastha Gas LtdBrokerage House Prabhudas Lilladher has revised its ?Accumulate? rating to ?Buy? with target price of Rs 1,080 as it expects IGL to sustain healthy margin trend led by benign domestic gas price outlook.

Brokerage House Prabhudas Lilladher in a research note on Indraprastha Gas Ltd (IGL) is bullish on the company’s shares as earnings growth looks strong. The brokerage house has revised its ‘Accumulate’ rating to ‘Buy’ with target price of Rs 1,080 as it expects IGL to sustain healthy margin trend led by benign domestic gas price outlook. At 1.20 pm, stock price of the company was trading 0.20 per cent up at Rs 783.00 on Thursday.

We take a look at points Prabhudas Lilladher has made about the company’s future growth

– The management maintains that overall demand activity has been maintained at Q1FY17 levels, with CNG growth likely to grow at 10% for FY17/18E led by opening of new CNG stations and continued traction in taxis/private car conversion. Also, likely addition of 1000 new buses over FY18 will help maintain demand traction. Margins are likely to come off Q1FY17 levels of Rs6.6/scm, given cost pressure of new CNG stations.

-Management mentioned that CNG demand growth is likely to be maintained at 10% for FY17/18E led by higher private cars and taxi conversion. Post Supreme Court order of not renewing permits of diesel cabs, over 8000 taxis have been converted over the last six months and management expects full conversion of 50000 taxis over the next three years. PNG demand remains healthy led by increased government thrust to expand PNG footprint, while commercial/industrial volumes growth is picking up. The brokerage house has raised FY17/18E gas sales volumes estimates to 10% from 8.5% earlier.

-Management expects spreads to come off Q1 levels of Rs6.6/scm led by higher cost of commissioning of new CNG stations; 78 opened in Q1. However, further cuts in domestic gas prices will support margins. The brokerage house has increased spread assumption to Rs 6.3/scm from Rs 6 earlier.

-IGL remains a green play on rising pollution concerns. Increased cars/taxis conversion and new bus addition in Delhi will drive 30% CAGR over FY16-18E. The brokerage house has raised its FY17/18E earnings by 7%/9% to build in higher margins and volumes.

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