Indraprastha Gas share price: The recent 9% fall in Indraprastha Gas Limited’s stock price in the last one month provides an attractive entry opportunity to investors as long-term volume growth outlook remain intact (management guidance of 10-12% volume CAGR over FY2020-FY2024E), which has well appreciated by the street historically. Indraprastha Gas share price closed at Rs 509, down Rs 2 in last session. 

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Moreover, pricing power in the CNG business (74% of overall gas sales volumes) given favourable economics versus petrol would help sustain high EBITDA margin of Rs. 8-9/scm. Thus, Sharekhan expects Indraprastha Gas PAT to grow at 25% CAGR over FY2021E-FY2023E along with high RoE of 22.4%.

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New Delhi now has as new permanent air pollution commission which would lead to secular volume growth for Indraprastha Gas (has shown consistent high-volume growth over FY2016- FY2020). Furthermore, the key overhang of open access for CGD players is also over now as PNGRB’s recent notification for third-party access (where marketing exclusivity has expired) has explicitly excluded OMCs as third-party.

Sharekhan maintains Buy rating on Indraprastha Gas with an unchanged price target of Rs 650. At the CMP, the stock is trading at 24.8x its FY2022E EPS and 22.3x its FY2023E EPS.

Indraprastha Gas Key Risks:

Lower-than-expected gas sales volume in case of COVID-19 led slowdown. Delay in development of new GAs, sharp rise in LNG prices, and adverse regulatory changes could impact outlook and valuations.