IGL stock check: Indraprastha Gas rallies 14% in three months, outperforms Sensex by 5%; Should you buy or sell?

IGL stock check: Shares of city gas distributor (CGD) Indraprastha Gas Ltd (IGL) have rallied 14 per cent in the last three months and outperformed the 30-share BSE Sensex by nearly five per cent. In the last six months, IGL has provided 26.19 per cent returns to investors against Nifty 50's 12.6 per cent. According to domestic brokerage HDFC Securities, IGL will likely witness volume growth led by the CGD's focus on expanding its city gas network in existing and new areas and competitive CNG price vs petrol/diesel.

On Wednesday, shares of IGL opened at ₹554.30 and hit an intra day high of ₹557.75 against a 52-week high of ₹570.60, before settling 1.10 per cent lower at ₹54.80 apiece on the BSE. The natural gas distributor commands a market capitalization of ₹38,416.04 crore and a turnover of ₹4.66 crore.

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IGL Q1 Results

IGL reported an 8.63 per cent fall in its standalone net profit in the first quarter (April-June) of the financial year 2024-25 (Q1 FY25) to ₹400.65 crore, down from ₹438.5 crore in the corresponding quarter of the previous year.

However, on a sequential basis, the CNG distribution company's net profit rose 5.55 per cent from ₹379.5 crore registered in Q4 FY24. The revenue from operations for Q1 FY25 came in at ₹3,891.4 crore, compared to ₹3,761.8 crore a year back, registering a rise of 3.4 per cent. 

Revenue was down a marginal 1.8 per cent quarter-on-quarter. Despite higher revenues, the net profit fell due to higher expenses related to higher purchases of stocks in trade worth ₹2,482 crore.

Also Read: Indraprastha Gas Q1 Results Live: Profit falls by 8% YoY

IGL was incorporated in 1998 when it took over the Delhi City Gas Distribution Project in 1999 from GAIL (India) Limited (Formerly Gas Authority of India Limited). The project started laying the network for distributing natural gas in the National Capital Territory (NCT) of Delhi to domestic, transport, and commercial consumers. 

IGL is a joint venture between central gas utility GAIL, oil marketing company Bharat Petroleum Corp Ltd (BPCL), and the Delhi government, who collectively hold a 50 per cent stake in the company.

IGL rallies 14% in three months: Should you buy or sell?

HDFC Securities cut the consolidated EPS for FY25/26 by 1.8/5.2 per cent to ₹28.4/30.1 to factor in lower near-term volume growth because of the bus segment's drag, delivering a revised target price of ₹615/share.

Valuation: At the current market price, IGL is trading at 17.5x Mar-26E EPS, a discount of ~10 per cent to its five-year average P/E multiple. HDFC Securities reiterated it ‘BUY’ rating on IGL with a target price of ₹615/share over the following reasons

(1)Healthy volume growth of ~10 per cent CAGR over FY24-29E
(2)Higher margins supported by higher allocation of gas from the high-pressure, high-temperature (HPHT) fields to the priority sector
(3)A strong portfolio of new geographical areas ensuring volume growth visibility. 

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While the Vahan data for its core areas for FY25YTD indicate only a ~two per cent YoY growth in new CNG vehicle registrations, HDFC Securities believes CNG volume growth levers are in place to achieve 7.2 per cent CAGR volume growth over FY24-26E.

IGL's long-term volume growth triggers in place

The brokerage expects a pick-up in IGL’s volume growth from the lows of FY24, driven by the expansion of the city gas network in existing and new core areas, a competitive CNG price vs. petrol/diesel, improvement in CNG vehicle registrations, and higher priority in the supply of HPHT gas for the CNG and DPNG segments.

‘’This can be partially offset in the near term by declining consumption from the DTC bus segment. We expect IGL’s volumes at 9/9.7mmscmd for FY25/26, implying a 7.2 per cent CAGR volume growth over FY24-26E,'' said HDFC Securities.

Also Read: InCred Equities downgrades Indraprastha Gas to ‘reduce’, cuts target price by 22% – here’s why

Margins

IGL’s per unit EBITDA margin bounced back to ₹7.4/scm during Q1FY25, driven by a fall in gas cost and lower opex. The company also took a ₹1/kg price increase in June to pass on the increase in gas cost. 

Brokerages expect the per-unit EBITDA margin to sustain going ahead due to the increase in CNG retail price offset by reduced allocation of domestic APM gas supply to the CGD sector. The EBITDA margins for IGL are estimated at ₹7.4/7.4 per scm for FY25/26.
 

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.