IGL’s Q1 net profit was 13% above our and 25% above consensus estimates as both volume growth and margins surprised positively. We believe Q1 has set the trend for the full year as IGL is in a sweet spot with tailwinds for both volume growth and margin expansion. Our full year EPS estimates are 15% above consensus — we expect upgrades to consensus numbers going forward. Maintain buy.
IGL’s Q1 net profit was 13% above our estimate and 25% above consensus estimate as both volume growth and margin surprised positively. We maintain that IGL is in a sweet spot with tailwinds for both volume growth and margin expansion. Periodic implementation of odd-even scheme in Delhi, more CNG cabs due to a SC order directing phasing out of diesel taxis and addition to bus fleet should drive a pick up in volume growth in FY17; lower domestic gas price is supportive of margin expansion as IGL has taken price cuts much lower than that implied by the gas price cut — in fact, it has passed on exchange rate depreciation through a small hike in July. We raise our EPS estimates for FY17 and FY18 slightly to factor in higher volume growth and better margins. Our DCF based fair value rises to `822. Our price target of `822 implies 16.5x FY18 P/E, at a premium to historic valuation given better growth outlook and lower regulatory risks. Key risks: Adverse policy. Higher feedstock cost or other expenses. Lower volume growth.