Outperformer on IGL; expect 17% upside from current levels: IDFC Securities

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Published: August 7, 2015 12:20:43 AM

IGL reported in line earnings of R100 crore for Q1FY16,down 11% y-o-y but up 6% q-o-q, on the back of a 4% q-o-q growth...

IGL reported in line earnings of R100 crore for Q1FY16,down 11% y-o-y but up 6% q-o-q, on the back of a 4% q-o-q growth in gross spread and 6% y-o-y & q-o-q growth in volumes. CNG volume growth at 270 mmscm, strong growth of 11% y-o-y, 7% q-o-q and marginally below estimates of 274 mmscm. PNG volumes at 79 mmscm, down 5% y-o-y but up 1% qoq and 5% ahead of estimates.

The quarter has seen continuation of the momentum seen in CNG volumes over the last 3 quarters, with overall growth of 6% yoy being the highest in the last 9 quarters despite a 5% dip in PNG volumes.  Recent developments in the CGD policy space (ie the Supreme Court ruling and the aggressive moves to tie up new areas (MNGL and CUGL) implies better times ahead for IGL. We believe the ruling and potential improvement in demand due to softer gas costs would provide material triggers for CGD companies. IGL, in particular, would benefit from 2,000-3,000 additional state transport vehicles and ~100,000 new CNG autos expected to join Delhi’s fleet over the next 2-3 years and the steady rate of addition of PNG connections (~100,000 households p.a.). Given steady margins and the improving operational environment, we maintain our outperformer rating for IGL, with a price target of Rs 564/share, with 17% upside from here.

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