Brokerage firm Emkay Global Financial Services believes Indraprastha Gas (IGL) stock is poised for gains going ahead due to steady volume and growing demand.
The brokerage firm has a buy call on the stock and it has raised the target price slightly by 3% to ₹465, implying a 17.5% upside from the stock's September 26 closing of ₹395.80 on BSE.
Year-to-date, the stock is down 16% against a 2% fall in the benchmark Sensex.
The brokerage firm said that IGL is well placed currently after the additional allocation with 90% of CNG+domestic PNG demand being met by domestic gas, and the remaining being diverted from a contracted term LNG base of 2.3mmscmd, which is currently priced at nearly $16/mmbtu.
"With growing demand, some spot is also being used currently – though overall margins in the second half of Q2 are robust. With monthly conversions decent at 15,000-16,000 (versus 17,000-18,000 peak), volume outlook is steady and the company expects to hit its 10mmscmd+ target by CY24. IGL’s planned capex is nearly ₹1500 crore annually for the next few years, equally split between existing and new areas," said Emkay.
Emkay pointed out that IGL’s associates – Central UP Gas (CUGL) and Maharashtra Natural Gas (MNGL) recorded healthy performance in FY22, with PAT up 51% and 92%, respectively. Their share in IGL’s consolidated earnings per share (EPS) rose from 11% to 15% year-on-year (YoY). EBITDA/scm of MNGL jumped 15% to ₹15.
CUGL’s and MNGL’s sales volume growth was nearly 43% each YoY, with CNG volumes up 48% and 67%, respectively, with 17-35 net stations being commissioned, totalling 74 and 167. Capex was steady at ₹120 crore and ₹400 crore for CUGL and MNGL, respectively, said Emkay.
"We retain our estimates albeit with slight tweaks to our longer-term DCF assumptions. We have slightly raised our September 2024E target price by 3% to ₹465 and maintain a 'buy'. Capping or lowering of domestic gas price and additional allocation for Q3 onwards are key positive triggers while adverse pricing, margins, gas cost, EV adoption, and project delays are the key risks," said Emkay.
According to a MintGenie poll, an average of 30 analysts have a ‘buy’ call on the stock.
Disclaimer: The views and recommendations given in this article are those of the broking firm. These do not represent the views of MintGenie.
