Robust rebound in volumes: IGL’s operating performance was broadly in line with our expectations in 4QFY21 reflecting a sustained recovery in volumes underpinned by a strong addition to customer base. We retain ADD rating with unchanged Fair Value of Rs575 expecting IGL to benefit from a strong growth in volumes and elevated margins trajectory in the medium term. We see limited risk to margins for CNG from expected rise in domestic gas price, given its significant differential versus liquid auto fuels.
In-line operating performance as recovery in volumes was offset by moderation in margins: IGL’s EBITDA was a modest 2% below our estimate at Rs4.92 bn in 4QFY21, declining 2% qoq as 9% qoq (and 10% yoy) rise in volumes to 6.8 mcm/d was offset by 8% moderation in unit margins. Gross margins declined 7% qoq to Rs13.6/scm reflecting higher-than-expected impact of rise in LNG prices. Unit EBITDA declined to Rs8/scm from peak level of Rs8.7/scm in 3QFY21, as lower gross margins was partly offset by lower operating costs.
Net income declined 1% qoq to Rs3.31 bn (EPS of Rs4.7). Income from associates, CUGL and MNGL, declined 9% yoy to Rs442 mn in 4QFY21. In FY2021, EBITDA declined 2% to Rs14.8 bn and adjusted net income declined 5% to Rs10.1 bn (EPS of Rs14.4), reflecting a sharp 17% decline in volumes impacted by lockdown, which was nearly mitigated by 18% jump in unit EBITDA to Rs7.6/scm. Income from associates, CUGL and MNGL, declined 18% yoy to Rs1.26 bn in FY2021.
Rising volume trajectory underpinned by robust additions to customer base during FY2021: Overall volumes increased 9% qoq and yoy to 6.8 mcm/d in 4QFY21 driven by (1) healthy 9% qoq rise in CNG volumes to 4.9 mcm/d; CNG volumes were up 8% yoy compared to a decline of 9% in 3QFY21 and 20% in 2QFY21, (2) 8% sequential increase in I&C segment, which recorded 20% yoy growth as compared to 12% decline in 9MFY21, (3) sustained healthy 12% yoy growth for the domestic PNG segment and (4) 10% sequential growth for sale to other CGD entities in Gurugram and Faridabad, which increased 1% yoy as compared to a decline of 35% in 9MFY21.
Cut FY2022E EPS to factor in impact from second Covid wave; retain ADD with FV of Rs575: We cut our FY2022E EPS by 8% factoring in (1) near-term blip in volumes and margins due to the second Covid wave and (2) other minor changes; we raise FY2023E EPS by 2% factoring in higher other income.
We retain our ADD rating on the stock with an unchanged DCF-based Fair Value of Rs575. We expect IGL to deliver a healthy growth in volumes as situation normalizes and rule out meaningful downside risk to margins from expected increase in domestic gas price given significantly favorable economics arbitrage of CNG over liquid auto fuels.