Analysts are excited about Indraprastha Gas Ltd’s (IGL’s) volume growth for the quarter ended December. The Delhi-based city distributor’s gas sales volume last quarter increased 12% over the same period last year.

IGL has been able to consistently deliver double-digit growth in volumes for some time now .

(Vipul Sharma/ Mint)

Coming back to the December quarter, sales volume of compressed natural gas (CNG), accounting for about three-fourths of IGL’s total volume, increased at 13%. Volume growth was helped by higher conversion to CNG. The company’s remaining volumes come from piped natural gas, or PNG, sales, which increased by about 10% in the quarter. Within the PNG segment, industrial and commercial volumes grew at a relatively faster pace.

IGL’s Ebitda per standard cubic metre (scm) for the December quarter increased by about 8% to 5.9. Ebitda is earnings before interest, tax, depreciation and amortization. Overall, net profit increased 19% year-on-year to 198 crore.

The good news is that the company’s volume outlook remains decent. “With 40 new CNG stations every year and low PNG penetration, we believe IGL has a robust growth pipeline in existing geographies," said analysts from Edelweiss Securities Ltd in a report on 6 February.

IGL’s new geographies—Rewari (0.2 mscmd), Haryana (0.5 mscmd) and Karnal (0.2 mscmd)—will also augment volumes over the ensuing four–five years, added the analysts. Mscmd is million scm per day.

High pollution levels remain a worry for Delhi, however, IGL has gained from this problem. In a recent report, Jefferies India Pvt. Ltd notes that higher pollution levels in the city could continue to help IGL benefit from stronger policy tailwinds vis-à-vis Mahanagar Gas Ltd. Delhi’s PM10 stands at over 2.2 times that of Mumbai. PM10 measures air quality trends for particle pollution and refers to inhalable particles, with diameters that are generally 10 micrometres or smaller. Mahanagar Gas is IGL’s peer based in Mumbai.

What of the IGL stock? For investors, 2019 has brought some cheer. The stock has risen 7.1% so far, suggesting that some of the optimism was factored in the price. Valuations aren’t particularly cheap though. The stock trades at 21 times estimated earnings for the next fiscal year, according to Bloomberg data. However, consistent volume growth can lend support to IGL’s valuations.