Indraprastha Gas Q2 Results Review - Volume Growth To Moderate Amid Multiple Headwinds: Motilal Oswal

Motilal Oswal Report

Indraprastha Gas Ltd. Q2 FY24 Ebitda, at Rs 6.6 billion, came in line with our estimate. However, its profit after tax, at Rs 5.3 billion, delivered 24% beat. Volumes rose 3% YoY to 8.3 million metric standard cubic meter per day during the quarter.

Management expects that ~15% of Indraprastha Gas volume may be hit due to the implementation of the recently approved Delhi motor vehicle aggregator and delivery service provider scheme. Although management has kept its volume guidance unchanged at 9 mmscmd as of end-FY24, the outlook for FY25 remains uncertain due to the implementation of the aforementioned scheme.

Lack of adequate infrastructure and paucity of credible electric vehicle options (Tata Tiago being the only credible option in sub-Rs 1 million category) remain the key challenges in implementation of the scheme. However, given the upcoming elections in Delhi in 2025, we believe the policy noise around EVs will remain high in Delhi, thereby capping the valuation upside.

Owing to stronger-than-expected margins in H1 FY24, we raise our Ebitda/supply chain management assumption to Rs 8 from H2 FY24 onwards. Subsequently, we raise our Ebitda/profit after tax estimates by 3%/7% for FY24 and by 13%/14% for FY25.

We expect Indraprastha Gas volumes to grow at 5%/8% in FY24/FY25, as against an 11% compound annual growth rate during FY16-23, owing to multiple headwinds.

We the stock at 12 times FY25E adjusted earning per share of Rs 25.1 and add of joint venture at 25% holding company discount to arrive at our target price of Rs 350. We reiterate our 'Sell' rating.

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