BSE ID : 532514 NSE ID : IGL
RECOMMENDED PRICE 530.15
PEAK FROM RECO 1070.95 102.01%
CURRENT PRICE 1005.25 89.62%
We initiate coverage on IGL with a BUY with a target price of Rs 691 representing a potential upside of 31% over next 18 months.
Incorporated in 1998, Indraprastha Gas Limited took over the Delhi City Gas Distribution Project in 1999 from GAIL (India) Limited. IGL continues to augment its infrastructure so as to meet the increasing demand of CNG arising out of growing number of CNG vehicles in Delhi.
We believe that IGL represents a compelling story to play the City Gas Distribution (CGD) business. The recent SC directive led traction around reducing pollution in the NCR region should provide a fillip to CNG gas volumes. Also with only 16% out of 40+ lakh households receiving piped gas, there exists significant scope for continuous growth of PNG volumes. Further, investments in other CGD geographies and bids for new geographies should improve visibility around sustainable growth over the medium to long term.
At the CMP of Rs 528, IGL is available at 10.6X FY18 earnings. We initiate coverage on IGL with a BUY with a target price of Rs 691 (14X FY18 EPS of Rs 49.4) representing a potential upside of 31% over next 18 months.
Our optimism stems from the following:
Over the period FY12-FY15, CNG volumes have been growing at a lacklustre 4% CAGR. But with the SC verdict, a sweeping change in the fuel consumption pattern is expected with a substantial ramp up in CNG sales volumes. We expect CNG sales to grow at a 13% CAGR to Rs 4,339.8 crore in FY18 from Rs 3,002.42 crore reported in FY15 given that
- No new diesel passenger vehicles will not be registered in Delhi
- Registration of diesel vehicles more than 10 years old will not be renewed
- Entry tax (on diesel CVs) has been raised
- There could be a complete ban on entry of diesel vehicles once the necessary infrastructure has been created.
- Delhi and Pune pollution levels are at alarming level and thus may
push NGT to adopt CNG aggressively.
- Conversion of CV into CNG growing at a brisk pace
- Renewed thrust on improved public transport to lead to higher
demand for CNG buses
- CNG stations to get a fillip with the SC decision
We expect PNG demand to grow at a CAGR of 7.9% to 41.5 crore SCM by FY18. Consequently, revenues are expected to grow at a CAGR of 11.5% to Rs 1,453 crore by FY18. The triggers for volume growth are as under
- Significant latent demand waiting to be tapped
- Falling prices should boost CNG usage by industrial and commercial consumers
- NCR household growth signifies strong demand potential
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