Private Client Research

Rating

Buy

Sector

Industrial Gases & Fuels

Company

Indraprastha Gas Ltd

Industrial Gases & Fuels

January 16, 2019

Sensex: 36321.29

CNX Nifty: 10890.30

NSE: IGL

BSE: 532514

Reco Price

Rs. 273.50

Price Target (3 - 6 Months)

Rs. 342

Upside

25.27%

Date

January 16, 2019

Sensex

36321.29

CNX Nifty

10890.30

Exchange

Code

NSE

IGL

BSE

532514

Stock Data

CMP (Rs)

274.70

Face value (Rs)

52 Week Range (Rs)

324.80 - 215.20

Market cap (Rs Crores)

19225.52

Price To Book Value (x)

5.29

P/E Ratio (x)

27.84

EV/EBIDTA (x)

14.92

One Year indexed Stock Performance

Indraprastha Gas Ltd Sensex

Return (%)

12m

36m

Absolute

4.97

4.43

-13.36

148.89

Sensex

0.14

-0.01

4.46

50.16

Shareholders

(in %)

31-Dec

Promoter

45.00

Public

55.00

Others

Total

100

+91 22 6639 3000

research@stockaxis.com

Profile

Indraprastha Gas Limited (IGL), is one of India's leading natural gas distribution companies. Established in 1998, the company operates primarily in the National Capital Region (NCR) of New Delhi.

The project was started to lay the network for the distribution of natural gas in the National Capital Territory of Delhi to consumers in the domestic, transport, and commercial sectors. With the backing of strong promoters – GAIL (India) Ltd. and Bharat Petroleum Corporation Ltd. (BPCL), IGL has become a major distributor of natural gas in the region.

Expansion in newer geographies to drive growth

Industry:
City Gas Distribution (CGD) market in India is forecast to reach 20,700 MMSCM by 2030. Growth in the market is anticipated on account of increasing natural gas demand from domestic, commercial, industrial as well as automotive end user segments. With an increasing number of favorable initiatives taken in the CGD sector by the Government of India, an increasing number of companies are being authorized to operate in CGD industry in different geographies across the country. In 2018, India CGD sales were dominated by the CNG segment, owing to stringent environmental regulations and rapidly growing penetration of CNG fitted vehicles in India. Backed by booming PNG and CNG segments, the country’s CGD network is anticipated to witness robust expansion in the coming years.

Financial Snapshot:

DESCRIPTION	FY15	FY16	FY17	FY18	H1FY19
Net Sales	3,681	3,686	3,815	4,592	2,991
Growth (YoY)		0.1%	3.5%	20.4%	24.3%
Total Expenditure	2,883	2,907	2,845	3,471	2,388
EBITDA	798	779	969	1,121	603
EBITDA (%)	21.7%	21.1%	25.4%	24.4%	20.2%
Depreciation	149	156	167	181	98
Operating Profit	649	623	802	940	506
Other Income	31	24	46	93	59
EBIT	680	647	848	1,033	565
Interest	35	14	7	9	1
Profit Before Tax	645	633	841	1,024	564
Provision for Tax	211	229	298	374	201
Tax Rate (%)	32.7%	36.2%	35.4%	36.5%	35.6%
Profit After Tax	434	404	544	650	363
Growth (YoY)		-7.0%	34.7%	19.5%	10.0%
Margin (%)	11.8%	11.0%	14.3%	14.2%	12.1%
Share of Associate	14	54	63	72
Consolidated Net Profit	448	458	606	722	363
Adjusted EPS	6.4	6.5	8.7	10.3	5.2

Strong Position in Delhi/NCR:
IGL has been at the forefront in the City Gas Distribution servicing the highest number of CNG vehicles in Delhi/NCR with a market share of 33%. The company is very well positioned for a shift in demand from petrol and diesel to CNG due to consistent high pollution levels in the Delhi/NCR region. The government has also been encouraging the use of cleaner fuels by incentivizing CNG passenger vehicles and LCVs. In last five years, the CNG volumes increased from 1,028 mmscm in 2013-14 to 1,413 mmscm in 2017-18 registering growth of 38% and CAGR of 8%.

Further expansion on track:
IGL has big expansion plans in the City Gas Distribution (CGD) space for its existing network as well as for newer areas such as Haryana and Uttar Pradesh. The company acquired 50% stake in Central Uttar Pradesh Gas Limited (CUGL) for total consideration of Rs.70 crores. The acquired entity CUGL, is authorised CGD operator in Bareilly, Kanpur, Unnao and Jhansi in Uttar Pradesh. In 2014, the company acquired 50% stake in Maharashtra Natural Gas Limited (MNGL) for total consideration of Rs.190 crores. MNGL is the authorized CGD operator for Pune and the adjoining areas in Maharashtra.

Further, Petroleum and Natural Gas Regulatory Board (PNGRB) is planning for the 10^th round of CGD auction after the success of the recent 9^th round, consisting of development of CGD in 86 geographical areas. IGL had bid for 11 areas in the 9th city gas distribution (CGD) licensing round. It won one license area comprising districts of Meerut (excluding already authorized areas), Muzaffarnagar & Shamli. Its 50% associate MNGL has won three license areas: Ramnanagra (Karnataka); Sindhudurg (Maharashtra); and districts of Valsad (excluding already authorized areas), Dhule & Nashik (Maharashtra).

Outlook :
IGL is one of the earliest entrants in CGD business and has a vast expertise in this area. Its business in Delhi/NCR is a major cash cow for the company will allows it to generate heavy free cash flows which can be used in expansion of existing network and building newer networks in allocated geographies. The company has been trying different ways to make the green alternative more accessible to customers to increase the offtake in Delhi/NCR, which we believe will lead to higher volumes going forward. IGL’s rich experience in CGD, strong promoters and strong balance sheet will help it grow strongly in new geographies going forward.

Valuation:
At the current market price (CMP) of Rs. 280, the stock is trading at a PE of 27x annualized H1FY19 EPS.

Technical

Reacting well from the Support & demand zone. Strong upside expected

Price: IGL hasmade a classical bottom formation on the weekly charts and has effectively reversed sharply from the important support levels of 235-255 price levels, these are crucial important support levels for the stock as these levels have being tested before quite effectively. The stockis one of the leaders in the Gas sector which makes it even moreattractive at the current price levels. The company is expected to deliver good quarter results with great prospects lying ahead in the Gas segment. Customers are more likely to shift toward CNG-fitted engines due to a rise in the cost of diesel LCVs post BS-VI implementation. Government measures to curb pollution (e.g. diesel CVs now are restricted from entering Delhi) are providing added support.

Volume: Price and volume analysis plays an important part in determining overall strength or weakness in the stock. Classical bottom formation pattern is always confirmed after looking at the volumes. Price & volume havepicked up at the current and near the bottom support level confirming fresh buying emerging and it can be concluded that the correction in the stock is now over.

Relative Strength Index: RSI is a momentum indicator that shows whether stock is in overbought or oversold territory. It reflects the strength of the stock as compared to the past. Daily RSI of IGL has been moving towards the positive territorywhich suggests that there is room for the stock to reverse and we can see some demand emerging in the coming few days.

MACD: Moving Average Convergence Divergence is most effective momentum indicator of the trend. Crossover in MACD line with signal line shows buy signal in the stock. Daily and intraday MACD ofIGLhave started to move up towards the bullish zone after lying in thenegativeterritory for a long time. Since the stock has approached good support and demand zone we can see momentum picking up in the lower time frame charts.

Conclusion: The stock has clearly made a bottom out formation with the confirmation of volumes. Momentum indicators like RSI and MACD are also showcasing strength in the lower time suggesting more upside. We recommend buying this stock with a very good risk-reward ratio at the current levels by keeping a stop below 233 for a target of 342.

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