BoB Capital Sees Strong Upside In This Midcap Oil & Gas Sector Stock, Recommends Buy

Current Market Price, 52-week low & high, and Returns over the years

The stock last traded at Rs 411.10 apiece on NSE, down 0.86% compared to the previous close. Its 52 week high was recorded on 27 December 2022 at Rs 492.15 apiece and the 52 week low at Rs 321 apiece was recorded on 7 March 2022, respectively.

The stock has fallen 6.16% in the past 1 week, 7.32% in the past 1 month and 3.15% in the past 3 months.  Over a year, it has fallen 14.17%, and in the past 3 years, it has fallen 3.43%, respectively. However, it gave 25.2% in the past 5 years. 

Takeaways from management call

While Q3FY23 margin is likely to be under pressure, margin can stabilise with policy support. IGL continues to target a healthy double-digit growth to reach 10mmscmd by FY25. Near-term drivers include BS6.2 implementation from Apr'23 for CNG, and a ban on polluting vehicles and industries from Oct'22. Domestic and commercial growth will likely continue with deeper penetration of pipeline infrastructure in Delhi and expansion into new GAs (new Geographical Areas). IGL expects medium-term growth from Rewari, Muzaffarnagar, Kanpur and Ajmer, and also from other new GAs. Management is also open to inorganic opportunities in newer geographies.

CNG to co-exist with EVs

While electric buses pose risk to ~10% of IGL's current volume, company expects the transition to EV ecosystem to be gradual. IGL is also actively pursuing scaling-up of long-haul CNG buses to offset losses from EVs over medium term. CNG, in our view, is likely to remain dominant in the passenger and commercial vehicle segments over next 5-10 years as significantly higher upfront prices and lack of adequate charging facilities will continue to dampen EV penetration.

Policy to support CGD growth

Government has been encouraging CGD sector so as to lower consumption of costly LPG, and to tackle pollution in urban areas. It has awarded 295 GAs so far. Winners of GAs have committed to connect 123mn households and set up 17,700 CNG stations. Amid tightening of international gas prices, Government set up the Parikh committee to identify solutions to ensure fair price for consumers. The recommendations can help CGD companies restore price advantage of CNG/ PNG over competing fuels.

Buy with TP Rs520

BoB Capital has said, "We expect IGL EBITDA to grow at a 10% CAGR mainly driven by 11% growth in volumes over FY23-FY25. We expect EBITDA margin to stabilise around Rs7.4-7.5/scm. We set target price of Rs520 based on cost of equity of 11%, volume CAGR of ~8% and average EBITDA margin of Rs 7.6/scm over FY22-33E, and terminal growth of 4%. Our DCF-based target price of Rs 520 implies target FY24E PE of 20.6x, broadly in line with 5-10Y mean 1Y forward PE."

Disclaimer

The stock has been picked from the brokerage report of BoB Capital. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.