Maintain buy on Indraprastha Gas, target price Rs 710: Jefferies

By: |
Published: May 17, 2016 7:08:35 AM

Indraprastha Gas’ Q4 results were largely in line with our estimates on all key parameters such as volume growth, EBITDA margin and net profit.

Indraprastha Gas’ Q4 results were largely in line with our estimates on all key parameters such as volume growth, EBITDA margin and net profit. We maintain that IGL is in a sweet spot with tailwinds for both volume growth – due to supportive policy environment for CNG and renegotiation of Rasgas contract for industrial PNG — and margin improvement — due to low domestic gas price. Maintain ‘buy’.

IGL’s Q4 results were largely in line with our expectation on volume growth, EBITDA margin and net profit. CNG volume growth was 5% in the quarter and 4% for the full year; PNG volume growth improved to 9% for the quarter vs. 4% for the full year. IGL’s share of profit in CUGL and MNGL increased to `536 million vs. `400 million in FY15. The company announced a dividend of `6/share, implying a payout of 24%, in line with historic trend.

Acceleration in volume growth is even more critical to IGL’s outperformance than margin improvement. In Q4, CNG volume growth picked up slightly to 5% from 3% in the previous two quarters (surprisingly, the company reported 8% growth in volumes expressed in scm vs. 5% growth in kg).

Our price target of Rs 710 is based on 15x 12m forward PE, a 25% premium to historic median of 12x, given better outlook. Key risks include- adverse policy, higher feedstock cost or other expenses, lower volume growth.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition
FinancialExpress_1x1_Imp_Desktop