How Indraprastha Gas is Emerging as a Promising Large-Cap Stock
Key Highlights :
Indraprastha Gas Limited (IGL) is a large-cap company that recorded a market cap of ₹ 34,671 Cr during Friday's closing. The shares of the Indian natural gas distribution company closed on a green note up by 1.11% during its last trading session. Research analysts see an upside potential of 104% from the stock's current market price in a target frame of 24 months.
IGL is one of the four listed City Gas Distribution (CGD) plays and is the top pick among them due to its consistent volume growth and profitability. The research analysts of Ventura Securities have re-initiated coverage on IGL with a ‘BUY’ rating and a price target of Rs. 1,009 (13x FY26 EV/EBITDA) representing a potential upside of 105% from the CMP of Rs. 491.
The analysts expect IGL to report an NG 4 year CAGR volume of 13% to 4,155 million SCM by FY26. They also anticipate a benign pricing environment and a stable EBITDA per SCM (INR 8-9 per SCM). This is expected to result in a 4-year CAGR Revenue/EBITDA/PAT of 25%/16%/15% to INR 18,820/3,380/2,598 crores over the period FY22-26.
65% of IGL's volume consumption is driven from the existing geographies of NCR. However, the analysts expect volumes to grow at a CAGR of 13.1% to 10.7 mmscmd by FY26 from 6.5 mmscmd (FY22). When including volume sales of the associates entities, Maharashtra Natural Gas Ltd (MNGL) & Central UP Gas Ltd (CUGL), the FY26 volumes are expected to scale to 11.4 mmscmd by FY26 from 7 mmscmd (FY22).
The CNG volume share is expected to increase by 220 bps to 74.4% over the same period with the rollout of an additional 450 new CNG stations (75 stations in FY23) to 1,161 stations. PNG domestic connections are expected to scale to 32.2 lakhs households (12% CAGR) & PNG industrial + commercial volumes are expected to grow to 520.5 mmscm (10% CAGR) with the total connections growing to 12,393 (+4,673 connections) by FY26.
On the back of the strong volume growth, IGL’s revenues are expected to grow at a CAGR of 25% to INR 18,820 cr over the period FY22-26. EBITDA is expected to grow at a CAGR of 16% to INR 3,380 cr while net earnings are expected to grow at 15% to INR 2,598 cr over the forecasted period. The analysts expect a drop in the EBITDA & PAT margins to ~18% & 13.8% in FY26 from FY22 levels of 24.5% & 19.5% respectively. This drop in margins is an outcome of the current elevated pricing (compared to FY22) even after considering pricing cuts post Kirit Parik committee recommendations.
ROE is expected to dip by 250 bps to 17.3% while ROIC is expected to improve by 2,030 bps to 55.3% respectively by FY26. IGL is expected to incur Rs. ~1300 crores CAPEX annually as it expands and deepens its network.
On Friday, the shares of Indraprastha Gas closed on the NSE at ₹ 494 apiece, however considering the stock's target price of ₹ 1,009 set by Ventura Securities the scrip has a potential upside of 104% from its current market price. The stock touched a 52-wee-high of ₹ 501.25 on (18-Apr-2023) and a 52-week-low of ₹ 335.35 on (17-Jun-2022). The stock’s lifetime high is Rs 602.05 and its lifetime low is ₹ 11.13 apiece level.
Disclaimers: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
Overall, Indraprastha Gas is emerging as a promising large-cap stock with a potential upside of 104%. Investors should keep a close eye on the stock and research it thoroughly before investing.
