Indraprastha Gas Q4 Results Review - Weaker-Than-Estimated Margin Leads To A Miss On Ebitda: Motilal Oswal

Motilal Oswal Report

Indraprastha Gas Ltd.’s Ebitda came in below our estimate at Rs 5.2 billion in Q4 FY24 due to a lower-than-expected Ebitda/standard cubic metre of Rs 6.6 (versus our estimate of Rs 7.2). Volumes increased 6% YoY to 8.7 million metric standard cubic metre per day.

Management guided a rise in volumes to 9.5 mmscmd in FY25 (FY24 average: 8.7 mmscmd) driven by:

1. robust growth (+15% YoY) at new geographic areas outside of Delhi-NCR, and

2. a strong industrial and commercial volume growth momentum.

Ebitda/scm guidance was retained at Rs 7.0-8.5. IGL guided FY25 capex at Rs 18 billion versus ~Rs 12 billion in FY24.

While management commentary turned bullish after several quarters, we believe FY25 volume guidance of 9.5 mmscmd might be hard to achieve given:

1. the continued retirement of DTC buses and replacement with an electric fleet, and

2. industrial volume growth, though healthy but may see continued competition from low propane prices.

Further, continued administered pricing mechanism gas shortfall may put pressure on margin guidance of Rs 7.0-8.5/scm.

We expect IGL’s volumes to report 7% compound annual growth rate in FY24-26, as against an 11% CAGR during FY16-23, owing to multiple headwinds.

We value the stock at 12 times FY26 adjusted EPS and add the value of JV at 25% holding company discount to arrive at our target price of Rs 390. We reiterate our Sell rating.

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