IGL share price falls despite 12% profit jump; brokerages divided over whether to sell or buy stock

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Published: June 18, 2020 11:49 AM

Indraprastha Gas (IGL) posted a strong March quarter with 12% on-year jump in profits at Rs 2,534 crore driven by better EBITDA margins of 22% and a 17% fall in taxes.

IGL, one of India’s leading natural gas distribution companies saw its volumes take a hit only in the last days of the March quarter.

Indraprastha Gas (IGL) posted a strong March quarter with 12% on-year jump in profits at Rs 2,534 crore driven by better EBITDA margins of 22% and a 17% fall in taxes. However, brokerage firms have a mixed reaction, some say it is time to sell the stock as IGL is expected to have been hit drastically by the lockdown and normalcy for the firm looks a distant dream that may be realised only in the financial year 2022, while other say IGL is a steady growth story with a robust volume growth outlook and high exposure to priority sectors. IGL’s share price slipped 4.4% on Thursday morning as the stock tumbled down to trade at the price of Rs 453 per share.

IGL, one of India’s leading natural gas distribution companies saw its volumes take a hit only in the last days of the March quarter. CNG volumes declined 1% yoy to 291 mn kgs. Overall PNG volumes increased 6% yoy as 7% decline in supply to other CGD entities in Gurugram and Faridabad region was offset by 9% growth in the I&C segment and a robust 17% growth in the domestic PNG segment. Income from associates, CUGL and MNGL, jumped 77% from the previous year to Rs 150 crore last fiscal year owing to a reduction in tax rate.

Analysts at Kotak institutional equities have cut EPS estimates for this fiscal by 8% after factoring in lower volumes amid likely slower recovery in volumes due to rising Covid-19 cases in Delhi and higher unit margins amid benign domestic gas/LNG prices. The brokerage firm has a SELL rating on the scrip with a fair value of Rs 380 per share. A similar outlook is being forecasted by ICICI Securities assuming a decline in CNG volumes by 20% on-year basis and industrial and commercial volumes by 25%. “Steep volume estimate cut has meant 27% cut in FY21E EPS. We estimate EPS for financial year 2022 to be up 26% on-year driven by 25% higher volumes. We assume a gradual fall in EBITDA margin from Rs6.45/scm in this fiscal to Rs5.71/scm in FY24E,” the brokerage said in a research report. ICICI Securities has a SELL rating with a target price of Rs 340.

While even those with a BUY rating on the stock do expect lower volumes during the coronavirus period but those are expected to be partially offset by the continuous slide in input costs. “Given IGL is opening 40 new CNG stations per year amid low penetration, it would log healthy growth in existing geographies,” said Edelweiss Securities in a research report. The new geographies added by IGL are expected to help the company boost volumes in the next four-five years. Edelweiss has a BUY rating on the scrip with a target price of Rs 569. IGL remains a sector overweight for Edelweiss.

The addition of new geographies and the resultant growth in volumes that will bring is also a key drive in HDFC Securities’ ADD call on the stock. “We expect volume to dip by 10.0% YoY to 5.8mmscmd in FY21 given a poor CNG volume outlook in 1HFY21. Thereafter, blended volumes should recover to 7.1mmscmd in FY22 (+21.7% YoY),” HDFC Securities said while pinning a target price of Rs 520 on the stock. IGL shares are up 48% from their March lows, outperforming the benchmark indices.

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