Value Pick: What makes Indraprastha Gas shares a lucrative bet? here are 3 reasons to buy this stock

Oil and Gas sector has been in the focus mainly on the back of softening crude oil prices and Russia reversing the flow of the Russian Yamal-Europe gas pipeline on Tuesday. Several brokerages picked Indraprastha Gas Limited (IGL) as best bet in the energy segment amid this crisis.

They see an upside of up to 55 per cent on the long-term basis from Wednesday’s closing price. 

See Zee Business Live TV Streaming Below:

The stock on Wednesday settled over 2 per cent higher at Rs 390.6 per share on the BSE, as against 1.8 per cent rise in the S&P BSE Sensex. In the year-to-date terms, the counter has corrected to around 18 per cent, underperforming the benchmark index, which is down 4 per cent during same period. 

HDFC Securities 

The brokerage gives a Buy recommendation on IGL with a target price of Rs 605 based on robust volume growth at around 19 per cent CAGR over FY21-24E. This implies an upside of 55 per cent; The company is also benefitting from government's focus on curbing pollution in the Delhi/NCR region, and a strong portfolio of mature, semi-mature, and new geographical areas (GA). 

In the December-ended quarter of current fiscal, the company’s EBITDA was 50 per cent above the brokerage’s estimate and profit was 58 per cent higher owing to lower-than-expected raw material cost and lower operating expenses. 

Reliance Securities 

IGL’s volume growth will be driven by nearly 1.1mmscmd volume from new geographical areas; higher-than-expected CNG vehicle addition rate; expected 0.6mmscmd volume led by pollution control norms and PNG domestic gas prices are 37 per cent cheaper than the LPG non-subsidized domestic cylinder.  

The company’s valuation appears to be inexpensive, as brokerage believes the stock does not reflect the likely 20 per cent volume CAGR over FY21-24E and the expected EBITDA margin of around Rs 7.4/scm in FY24E.  

The brokerage maintains BUY rating on the stock, with a lowered DCF-based 1-year target of Rs 543 per share, 39 per cent upside. Target price implies a PE multiple of 23.7x FY24E EPS, which is at a 5 per cent discount compared to the last 1-year average and 1-year forward PE multiple of IGL.  DCF is Discounted Cash Flow.

Axis Capital 

IGL is well placed to gain from the shift to environmental friendly and cheaper natural gas. As it expands its infrastructure and private vehicles keep shifting gradually to CNG, volumes would continue to grow.  

Led by 18 per cent CAGR in volume over FY21-24E, we expect EBITDA and PAT to grow at CAGR of 17 per cent and 16 per cent respectively. The brokerage also expects RoE to sustain above 18 per cent, supporting valuation and reiterate BUY with target of Rs 510 per share, over 30 per cent upside.