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Target: ₹600
CMP: ₹493.35
Indraprastha Gas was hit by lower EBITDA spreads while CNG volume peaked in Q4. The gross margin improved sequentially on the fall in gas costs (Rasgas and LNG spot prices down q/q). The Kirit Parikh Committee recommendations have now been approved and, from Q1 FY24, we see better volume growth with greater differences than alternatives.
We expect EBITDA spreads of ₹7.6/scm in FY24 and ₹7.7 in FY25. We prefer Indraprastha Gas to Gujarat Gas and Mahanagar Gas, expecting them to benefit from lower gas prices after the approval of the Kirit Parikh Report recommendations, which resulted in lower CNG and D- PNG prices, which could drive volumes.
The stock trades at 19.3x/17.5x FY24e/FY25e PER.
We maintain a Buy, with a revised 12-month of ₹600 (₹69 from MNGL, ₹21 from CUGL).
Risks: Slower volume growth, margin compression on lower differences vs alternatives, regulatory changes, higher LNG prices, slower infrastructure rollout, competition from alternative fuels such as electricity for vehicles.
We retain a Buy rating on the stock with a revised 12-mth TP of ₹600 (₹570 earlier), at 19x FY25e EPS.
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