'Buy' View Recommended For This CNG Stock From A leading Brokerage House: Gives An Upside of 34.61% From CMP

Delayed implementations pushed down gas prices

According to Prabudas Liladhar, they lowered their expectations of the quarter numbers. "We lower our FY23-25E earnings by 21-11% given 1) delayed implementation of Mr Kirit Parikh committee recommendations to bring down domestic gas prices by USD2/mmbtu and 2) lower margins (FY23/24/25 at Rs7.0/7.6/7.7 from previous ones at Rs 8.4/8.5/8.6). Indraprastha Gas (IGL) Q3 EBIDTA/PAT dropped to Rs 4.3bn (-19%Q/Q; PLe Rs4.8bn) and Rs 2.8bn (-33%Q/Q; PLe Rs3.3bn) due to lower margins and volumes. Volumes were flat QoQ and up 8%YoY at 8.1mscmd. Domestic gas prices are likely to correct going forward. Also international gas prices have corrected (spot LNG at USD15-20/mmbtu vs Q3 levels of over USD30), which will mean lower gas prices for domestic CGD players. Moreover, availability of 12mmscmd new RILKGD6's volumes will ease gas availability concerns."

Still the brokerage house believes there will be growth of this company and its stock is worth a buy. "IGL remains an enviable business model with high volume growth due to geographical expansion and addition of new buses and taxis. Reiterate 'BUY' at DCF-based PT of Rs564 (Rs596) as we lower margins and profits."

Gas pricing will affect the margins

Prabudas Lildhar says in its report, that margin could drop if the gas cost would come down because of two main reasons. "After a sharp increase in gas cost to Rs38.3 (up 95% YoY), prices are likely to come down going forward following 1) implementation of Kirit Parikh committee recommendation to USD6.5/mmbtu and 2) correction in international gas prices. Currently spot LNG prices have corrected to USD15-20/mmbtu due to high EU gas inventory over 80% and recessionary pressures. New supplies from KGD6 of 12mmscmd will likely start from Feb-23 and gradually ramp up. We however lower our FY23/24/25E EBIDTA/scm margins of Rs7.0/7.6/7.7scm vs (8.4-8.6 earlier) as we expect maximize volume growth. "

Future will remain robust

According to the brokerage house, there is limited scope of government threat of EV. "We see limited threat to the company's growth prospects as strained state financials post pandemic leave a very little room for state government to introduce high cost EV buses (~Rs8.5mn post 40% subsidy) vis-à-vis Rs4.5mn for CNG variant. State government subsidy will increase two wheelers penetration of EV who do not use CNG. Accordingly, we see limited hindrance to IGL's prospect."

Disclaimer

The stocks have been picked from the brokerage report of Prabhudas Lildhar, 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.