Indraprastha Gas (IGL) share price today: Jefferies maintains Hold on IGL with an unchanged price target of Rs 580

Indraprastha Gas (IGL) share price today: While EBITDA was 28% higher yoy for IGL, it missed Jefferies estimate by 7% on lower volumes (2% miss) and EBITDA margin (6% miss). Jefferies have factored in the 10% earnings miss in Q3 FY21 and a softer Q4 FY21E leading to a 5% cut in FY21E EPS but keep FY22-23E EPS broadly unchanged. Jefferies maintain Hold with an unchanged Rs 580 price target as the strong near-term earnings outlook appears priced in at valuations above 23x FY22E P/E. Share price of IGL is 2% or Rs 11 up trading at Rs 568.

IGL volumes down 6% yoy coming 2% below Jefferies Estimate:

Overall volumes in 3QFY21 were 6.5% lower yoy coming 2% below Jefferies estimate. Volume performance was better than Mahanagar Gas (down 9% yoy) but lagged Gujarat Gas (up 23% yoy). CNG volumes of IGL (75% of overall volumes) was down 9% y/y while third party volumes were  14% lower yoy.

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IGL EBITDA rose 28% yoy but came 7% below Jefferies estimate:

EBITDA rose 28% yoy despite lower volumes helped by better margins but lagged Jefferies estimate. PAT was also up 18% yoy but missed Jefferies estimates by 10%.

CNG station addition momentum weak so far but expected to be strong in Q4 FY21E for IGL:

With no CNG stations added in Q3 FY21, only 4 stations have been added in 9M FY21 but earlier target of 60 CNG station additions in FY21E is achievable also noting that station additions have been concentrated in the fourth quarter in the past as well.

Volumes are at 95-96% of pre COVID levels now for IGL:

Overall volumes are at 95-96% of pre COVID levels now suggesting recovery to be a tad slower than our earlier expectations. CNG volumes still at 93-94% of normal levels have been a deterrent. Nonetheless, with 1k DTC CNG buses to be added in FY22E, Jefferies have built in 8.5% CAGR in volumes over FY20-23E.

IGL Margin performance remains impressive:

IGL EBITDA margin has risen to an all-time high of Rs 8.7/scm helped by partial benefit of lower dom gas costs retained by the company. Strong pricing power demonstrated by the company prompts us to model Rs 8.5/scm EBITDA margin over FY22-23E which is higher than Rs 5.5-6/scm. IGL has clocked over the past few years. But Jefferies note potential downside risk to margin estimates in case manangement strategy reverts to maintaining moderate margins once volume growth recovers post-COVID.