 "Indraprastha Gas adds another feather to its cap")
Indraprastha Gas (IGL) recently won a bid to develop the city gas distribution (CGD) network in Haryana’s Rewari district. This win has added another engine which will fuel the company’s growth. Notably, the increased regulatory push to cleaner fuels such as Compressed Natural Gas (CNG) in Delhi has boosted IGL’s volumes in recent times and the trend is likely to continue going forward as well. The company’s inorganic moves to buy out a 50% stake each in two CGDs namely Maharashtra Natural Gas and Central UP Gas have enabled it to diversify outside the National Capital Region (NCR) into Pune and Kanpur/Bareilly, respectively. The Rewari win, coupled with these buyouts, will reduce IGL’s dependence on NCR and also drive future growth.
The Rewari CGD is likely to deliver high volumes for IGL due to a couple of reasons. One, the National Highway (NH) 8 passes through Rewari which means the demand for auto CNG will be high given vehicular traffic of about 50,000-60,000 vehicles per day on the highway. Second, it is also located in close proximity to two industrial hubs of Bawal and Dharuhera. Third, the district has up to two lakh households, which can be bought in the piped natural gas (PNG) ambit going forward.
Analysts estimate Rewari’s volumes at 0.5 million metric standard cubic meter per day (mmscmd) by FY22 and IGL’s capex for this CGD to be around Rs 430 crore till then. IGL’s total volumes stood at about 4 mmscmd in FY16 with CNG volumes contributing a major chunk (77.5 per cent) of the total. In this backdrop, IGL’s earnings growth is likely to get a significant leg-up going forward.
Amit Rustagi, analyst at IDFC Securities, says, “We expect IGL’s EPS compounded annual growth rate at 22% in FY16-18 versus FY11-16 levels of around 10%. The improvement should be led by gross spread expansion, higher volume growth and resultant EBITDA boost.”
It is thus not surprising that the IGL scrip has outperformed the benchmark S&P BSE Sensex in the past year as well as the past one month with returns of 44% and 15%, respectively. In fact, the stock made an all-time high of Rs 702.8 per share on August 19. Nevertheless, given the strong fundamental triggers and under-penetration of both CNG and PNG, the stock could witness further re-rating. Addition of new CNG buses and adoption of green fuels in other markets are a few growth catalysts for IGL.
“A major trigger could come from Gurgaon (2?3 mmscmd potential volumes), which has been placed under a live?green bench and hearing is expected this year,” says Sabri Hazarika, analyst at PhillipCapital.
Most analysts are thus optimistic on the stock. Current valuation of 14 times FY18 estimated consolidated earnings is also attractive.