Buy Indraprastha Gas Ltd With Target Of Rs 370 : PINC Research

Indraprastha Gas Ltd. (IGL), sole supplier of natural gas to National Capital Region of Delhi, boasts of a sovereign parentage of GAIL, BPCL and the Govt. of Delhi. To keep its pace with the growing demand for CGD, IGL continues its drive to expand its network in Delhi and NCR towns of Noida, Greater Noida and Ghaziabad.

Secular growth story

We expect CNG segment to grow at a CAGR of 13% and PNG segment with higher rate of 58% for next three years. On the back of strong volume growth and regular price hike to nullify the impact of high cost, net sales is expected to grow at a CAGR of 40.6% from FY10 to FY13.

Ability to pass price hike

IGL showed immense strength in terms of passing gas cost hike to its customers. The company raised CNG prices seven times
(~53% cumulative) in last 18 months to compensate increased prices of APM gas and rising proportion of high cost LNG into their portfolio.

Aggressive capex planned

IGL plans to have ~300 stations operational by end of FY12 from current level of ~200 stations. For PNG business, the company expects to increase its customer base from 182k in FY10 to 300k+ by FY12. IGL plans to incur capex of ~Rs30bn in the next five years from FY11 to FY15 in Delhi and NCR regions.

Concerns

Uneconomical prices of LNG may create risk for volume growth in future. Any regulatory interference in deciding marketing margins may be negative for CGD players.

VALUATIONS AND RECOMMENDATION

At the CMP of Rs297, the stock is trading at P/E of 14.7 & 13.1 and EV/EBITDA of 7.9x and 6.8x respectively for FY12 and FY13. We initiate coverage on IGL with a ‘BUY’ recommendation and a price target of Rs370 based on DCF (upside +25%) with a 12 month time horizon.