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Buy This Mid Cap Gas Sector Stock For Rs 507 Target Price, Revenue Doubled With 155.7% YoY Growth  

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Geojit in its recent report has recommended 'buy' the stock of Indraprastha Gas Ltd. With a buy call, the brokerage has estimated Rs 507 target price for the stock.

 

In Q1FY23, its standalone revenue doubled to Rs. 3,530cr (+155.7 YoY; +21.8% QoQ), supported by healthy volume increase of 48.4% YoY to 718mn standard cubic metre (SCM). Segment wise, CNG and piped natural gas (PNG) volumes rose 62.7% and 17.1% YoY, respectively.

Indraprastha Gas Ltd (IGL), jointly promoted by Bharat Petroleum Corporation and Gas Authority of India, processes and distributes compressed natural gas (CNG) and liquefied petroleum gas. Indraprastha Gas Ltd. is a mid-cap gas & Petroleum sector company having a market cap of Rs 29,295.03 crore.

Stock Outlook

Stock Outlook

The Current Market Price (CMP) of the stock is Rs 418.50/share. The stock's 52-week low is Rs 321 recorded on 07 March 2022 and the 52 week high is Rs 602.05 recorded on 14 September 2021. If the stock is purchased at the current market price taking the estimated target price into consideration, the stock is likely to gain 22% in 12 months.

Returns over the past 5 years
 

Returns over the past 5 years

The stock of the company in the past 1 week has given 0.1% positive return. In the past 1 and 3 months, it surged 18.99% and 13.32%, respectively. However, over the past 1 year, it gave a negative return of 20.19%. In the past 3 and 5 years, the stock gave 27.09% and a massive 67.15% positive returns, respectively. 

Robust volume increases more than doubled revenue

Robust volume increases more than doubled revenue

Indraprastha Gas Limited's standalone revenue grew 155.7% YoY to Rs. 3,530cr (+21.8% QoQ) owing to volume increasing 48.4% YoY to 718mn SCM. Segment-wise, CNG's revenue rose 177.3% YoY to Rs. 2,357cr with 62.7% YoY growth in volumes to 540mn SCM. PNG's revenue grew 107.2% YoY to Rs 825cr with rise in volumes of 17.1% YoY to 178mn SCM, driven by growth in PNG volumes (+33.5% YoY). Within PNG, commercial/industrial volumes increased 19.9% YoY to 88.8mn SCM, whereas domestic volumes rose a slight 0.3% YoY to 43.8mn SCM.

Profit up but margin impacted by higher purchase costs

Profit up but margin impacted by higher purchase costs

In Q1FY23, gross profit increased 47.2% YoY to Rs. 1,023cr. However, gross margin contracted sharply by 21.4% YoY to 29.0%, mainly due to surge in purchase cost of natural gas. However, EBITDA rose a sharp 62.1% YoY to Rs.618cr. But EBITDA margin contracted sharply by 10.1% YoY to 17.5%, due to added impact of higher employee spends (+28.6% YoY) and other expenses (+29.1 YoY). Operating profit increased 75.5% YoY to Rs. 532cr and adjusted profit after tax (PAT) rose 72.3% YoY to Rs. 421cr from Rs.244 in Q1FY22. PAT margin contracted 577bps YoY to 11.9%, though.

Actively diversifying business

Actively diversifying business

Indraprastha Gas Limited is seeking opportunities to diversify into other areas. As part of this, it commenced CNG sales from mobile refueling units (MRUs) and is looking forward to increase the number of MRUs to provide gas to CNG customers. The company is also making efforts to convert existing buses of state transport undertakings to CNG. Meanwhile, it has a strong credit profile on the back of a comfortable working capital position and strong cash generation.

Buy for target price of Rs 507

Buy for target price of Rs 507

According to the brokerage firm, "Indraprastha Gas Limited posted strong operational performance in the current quarter, with higher-than expected volume growth, led by expanding geographical footprint. Although electric vehicle (EV) sales could impact CNG volume, the company plans to venture into the EV segment by setting up 50 battery swapping stations. Further, Indraprastha Gas Limited is engaging with state governments to convert their fleets to CNG. Hence, we maintain a positive outlook for the company and reiterate our BUY rating on the stock, with a rolled forward Target Price of Rs. 507 based on SOTP methodology."

Disclaimer

Disclaimer

The stock has been picked from the brokerage report of Geojit. 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 check with certified experts before making any investment decision.

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