200% Dividend: LPG Stock Trading Below Rs 400 Is Recommended As Buy; 28% Rise Seen

- (IGL) is one of the leading suppliers of LNG, PNG and CNG in the country. This natural gas stock is in focus this week as the share price will turn ex-dividend on November 15. IGL will pay a whopping 200% interim dividend to shareholders. While its operationally strong performance has made the majority of brokerages recommend buying in the stock. A potential 28% upside from the current price level is seen ahead.

On BSE, IGL shares traded at Rs 391.40 apiece, down by 1.6% with a market of Rs 27,398.03 crore. There is a buy-on-dips strategy seen in IGL.

As per the regulatory filing, IGL has declared an interim dividend @ 200% i.e. Rs.4.00 per share (Face value of Rs.2/- each) on the equity shares of the Company for the Financial Year 2023-24. The record date for ascertainment of shareholders entitled to receive the aforesaid interim dividend shall be November 15, 2023 (Wednesday).

Hence, IGL shares will trade ex-dividend on November 15.

In Q2FY24, IGL shares recorded a consolidated net profit of Rs 552.67 crore, higher from Rs 426.84 crore in Q2FY23. While consolidated revenue from operations stood at Rs 3,822.5 crore, lower from Rs 3,922.02 crore in Q2 of FY23.

Here's what brokerages tell about IGL shares ahead:

JM Financial:

We have reduced our volume growth assumption for IGL by 100bps from FY25 onwards and terminal growth assumption to 3% (from 5%) to account for the likely adverse impact of Delhi's EV policy on its overall CNG volume. This has led to a cut in our FY25 EBITDA estimate by 2.6% while our FY24 EBITDA estimate remains unchanged. Hence, our DCF-based TP has been cut to INR 500 (from INR 570). However, we still maintain BUY on valuation grounds and due to IGL's: a) decent pricing power given that CNG is 45%/25% cheaper than diesel/petrol, and b) steady volume growth story based on its existing lucrative NCR market (CNG penetration in private cars is 25-30%) and expansion into new, lucrative nearby cities and intercity traffic.

At CMP, IGL is trading at FY25 P/E of 12.7x (3-year avg: 19.3x) and FY25 P/B of 2.7x (3-year avg: 4.4x). Key Risks: muted volume growth and margin concerns due to a rise in penetration of electric vehicles and/or no increase in domestic gas allocation; and a sharp hike in HPHT/spot LNG gas price.

Centrum:

Despite the adverse impact of the proposed Delhi EV Policy, management remained confident of volume growth from new initiatives for Delhi as well as other GAs. Also, volume impact is expected to be gradual thus providing the company to take corrective measures to arrest the volume decline. We have accounted for volume impact due to the Delhi EV Policy and accordingly, the SOTP and DCF-based target price has been reduced.

We have adjusted our growth considering the gradual impact of EV policy. Considering 1HFY24 numbers and management guidance on EBITDA/ scm, we have raised FY24E/ FY25E earnings by 9.4%/ 6.5%. Stock reacted negatively post the news on Delhi EV policy.

Based on our revised estimates considering lower volumes, we upgraded the stock from Add to Buy with a revised SOTP-based TP of Rs447 (earlier Rs523).

Prabhudas Lilladher:

We cut our FY24-25E EPS estimates by 11.4%/16.5%, as we cut our volume estimates. Indraprastha Gas (IGL) reported an EBITDA/PAT of Rs 6.6bn (up 2% QoQ, PLe: Rs 6.4 bn) and Rs 5.3 bn (up 22% QoQ, PLe: Rs4.4 bn). Other income of Rs1.3 bn came in higher than expected (up 193% QoQ, PLe: Rs 0.5bn). Sales grew ~3% on a YoY basis. EBITDA came in at Rs8.6/scm, flat YoY. The company targets to reach an exit volume of 9 mmscmd in FY24. We build in conservative volume growth CAGR of 7% over FY24-26E. Maintain 'Hold' rating with a TP of Rs406 (earlier Rs539) based on 15x FY26E P/E.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.