CNG conversions continue at 3,000-3,500 per month, including 1,000-1,500 aggregators. There are ~20,000 aggregators yet to be converted to CNG. IGL targets to open 20 more CNG stations over the remainder of FY18. CNG volumes are expected to continue growing in double-digits. After already opening two CNG stations at Rewari, IGL intends to open additional four stations in FY18. It aims to attract more of highway traffic with these stations. IGL has identified six CNG stations on highways that do not come under the existing geographical areas (GAs) to capitalise on the highway CNG potential. Rewari has large fuel oil-based industrial consumers, with peak sales of 0.5- 0.6 mmscmd. IGL was recently awarded part of Gurugram GA. It intends to open 10 CNG stations in a year. Peak sales are estimated at 0.5-0.6 mmscmd, with sales ramping to 0.2-0.3 mmscmd in 2-3 years.
The recent petcoke/FO ban could drive some pick-up in industrial volumes. However, suppliers are now replacing FO with carbon black feedstock and other equally polluting but not banned industrial fuels. IGL has made representations to the Environmental Pollution and Control Authority for the effective implementation of a ban on polluting industrial fuel. Two big companies with total consumption of 15,000 scmd in Ghaziabad and Greater Noida have already signed a contract for shifting to natural gas. We foresee several positive triggers for the stock: Inclusion of gas under GST. Effective implementation of a ban on dirty industrial fuels. Reforms in CGD bidding criteria. Further restriction on diesel vehicles due to high pollution. Implementation of unified tariff would also lower its procurement cost. In our detailed report ‘Expanding Horizons’, released on 27th November 2017, we had outlined the rationale for 12%+ volume growth for IGL over FY17-22E. We value it at 30x average FY19-20E EPS, earnings of subsidiaries adjusted for holding company discount. We reiterate ‘buy’ with a target price of Rd 404.