Indraprastha Gas - CNG Strength Counters EV Threat: HDFC Securities

HDFC Securities Institutional Equities

The Indraprastha Gas Ltd. stock price has seen an ~15% correction over the last five months and underperformed the Sensex by ~25%, owing to the threat of electric vehicle following the introduction of the Draft EV policy 2.0 and the recent cut of Rs 2.5/kg in retail CNG price.

Notwithstanding the EV threat, we expect Indraprastha Gas, with higher exposure to the compressed natural gas segment, to benefit from the boost to volume growth, driven by favorable economics between CNG and alternative fuels and expansion of city gas network in new geographical areas.

Our thesis of volume growth improvement is also supported by Vahan data, which indicates an improvement in monthly CNG vehicle registrations in Delhi.

With the CNG volume growth catalysts in place, we estimate volume growth for Indraprastha Gas should improve, going ahead.

We reiterate our Buy recommendation on Indraprastha Gas with a target price of Rs 480, given-

1. strong volume growth of ~11% compound annual growth rate over FY24-26E,

2. robust margins, and

3. a strong portfolio of new GAs ensuring volume growth visibility.

We estimate that Indraprastha Gas’ stock price factors only 8.2% CAGR volume growth over FY24-32E, assuming 0% terminal growth.

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