Indraprastha Gas - Margin surge made up for volume fall in Q2 - ICICI Securities
Indraprastha Gas' (IGL) Q2FY21 standalone recurring EPS is down 1% YoY as fall in volumes was made up by surge in EBITDA margin. Consolidated Q2 EPS was up 7% YoY despite steep fall in share of profit of associates due to tax/PBT of just 3%. H1 standalone recurring EPS is down 37% YoY and consolidated down 31% YoY. Raising FY21E EBITDA margin and volumes has led to FY21E EPS upgrade by 32% and target price by 7% to Rs333 (26% downside). In Q2, EBITDA margin surged to all-time high as IGL used its monopoly position to boost margin by not passing on the full benefit of YoY fall in raw material cost and QoQ plunge in opex as volume rebounded. However, IGL's monopoly pricing power may soon come to an end as regulator PNGRB allows competition. We believe any share price rise driven by unsustainably high margin in Q2 is an opportunity to exit IGL before imminent deterioration of fundamentals. Reiterate SELL.
- Q2FY21 EPS up 7% YoY on margin surge & tax/PBT of 3%: Q2FY21 standalone recurring EPS is down just 1% YoY as surge in EBITDA margin to record high of Rs8/scm (up 24% or Rs1.6/scm YoY) made up for decline in sales volumes by 16% YoY. YoY margin rise was driven by raw material cost fall not being fully passed on as cost fall was Rs4.3/scm YoY vs realisation fall of Rs2.2/scm YoY and opex rise of Rs0.6/scm in Q2FY21. CNG volumes were up 147% QoQ but down 21% YoY and industrial & commercial volumes were down 1% YoY. Q2FY21 consolidated recurring EPS was up 7% YoY, despite 32% YoY fall in share of profit of associates due to deferred tax credit of Rs700mn, which means tax/PBT was just 3%.
- Raise FY21E EPS and target price: We have raised FY21E EBITDA margin to Rs7.34/scm from Rs5.05/scm earlier to factor in the surge in Q2 and volume by 3% to 5.2mmscmd (down 19% YoY vs 36% YoY in H1). This has led to an upgrade in FY21E EPS (down 13% YoY) by 32% and target price by 7% to Rs333/share.
- Reiterate SELL given impending competition: PNGRB has since Sep'20 issued draft regulation on 1) determination of transportation rate, which the incumbent can charge new entrants and 2) access code, which lays down the procedure to be followed by the incumbent to allot 20% of its transmission capacity to new entrants. The draft regulations appear to favour new entrants as it proposes cost plus tariff (instead of fixing base tariff with capacity allotted to highest bidder) and does not address incumbent concerns on cherry picking by new entrants. Three OMCs are likely to emerge competitors and lead to de-rating of IGL and hit its margins.
Shares of INDRAPRASTHA GAS LTD. was last trading in BSE at Rs.439.55 as compared to the previous close of Rs. 434.95. The total number of shares traded during the day was 62095 in over 2049 trades.
The stock hit an intraday high of Rs. 441.9 and intraday low of 429.8. The net turnover during the day was Rs. 27047862.
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