Indraprastha Gas rallies 8%, hits new high on healthy volume growth in Q2

Shares of Indraprastha Gas (IGL) hit an all-time high of Rs 425, rallying 8 per cent on the BSE on Friday after the company reported healthy 12 per cent year-on-year (YoY) growth in sales during September quarter (Q2FY20). The stock surpassed its previous high of Rs 396 touched on November 1, 2019 in the intra-day trade.

In Q2FY20, compressed natural gas (CNG) sales volume increased by 10 per cent and piped natural gas (PNG) sales volumes increased by 12 per cent over Q2FY19. Going ahead as well, growth in CNG and domestic PNG is expected to be healthy on continued consumer addition.

The company’s consolidated net profit jumped 103 per cent YoY to Rs 381 crore against Rs 187 crore in the year-ago quarter. The net profit during the quarter was higher-than-expected at Rs 274 crore, on account of adoption of revised tax provision and consequent recalibration of deferred tax liability, leading to a lower tax liability in Q2. EBITDA (earnings before interest, tax, depreciation and amortisation) margin improved to 23.2 per cent from 21.7 per cent, aided by price revision and benign spot LNG prices.

Brokerages have maintained ‘buy’ rating on IGL with the target price (TP) in the range of Rs 418 to Rs 430 per share.

“We reiterate Accumulate with a revised TP of Rs 418 from Rs 345, as the stock has run-up 27 per cent in the past three months, mostly factoring in expectations of a volume CAGR of 12 per cent over FY20-25E. We revise our TP as we roll-over to FY22 estimates and assume a lower tax at 25 per cent from 31 per cent,” analysts at Elara Capital said in a quarterly update.

“Over the past fourteen quarters, IGL, on an average, has grown in excess of 10 per cent YoY in volume terms. Going forward as well, incremental demand from sustained vehicle conversion, introduction of new -DTC busses, heightened environmental concerns and newly-awarded GAS gives us the confidence on IGL's ability to maintain growth trajectory,” analysts at Antique Stock Broking said.

In addition to a healthy rate of growth, IGL has been able to improve the EBITDA margin to Rs 6/unit and above (from Rs 5.5-5.8/unit) which we believe is sustainable, it added. The brokerage firm maintains BUY rating on IGL, with a revised TP of Rs 430 per share.