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Indraprastha Gas Ltd (IGL) shares gained more than 4% on Monday after it announced its March quarter results. The stock had been on a downtrend since mid-June, but has now regained some of the lost ground post-Q4 results.

Analysts said the March quarter performance declared on Friday, though, remained a mixed bag. While gas sales volumes grew well, operating performance saw some impact of higher costs.

Gas sales volumes at 614 million standard cubic metres were up 8% year-on-year (y-o-y). Compressed natural gas (CNG) and piped natural gas (PNG) volumes rose 7% and 11% y-o-y, respectively.

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Net realization was up 1% sequentially, but gas costs jumped 10%, analysts said. Hence, gross margin declined 6% sequentially to 13.6/scm (standard cubic metre), which was a 5% miss, as per estimates of Emkay Global Financial Services Ltd. Declining operating expenses nevertheless supported earnings before interest, taxes, depreciation and amortization (Ebitda), which grew 31% y-o-y. Ebitda per scm at 8 was up 21% y-o-y, although slightly lower than analysts’ expectations. The firm continues to be a strong beneficiary of the rising demand of cleaner and cheaper fuel in Delhi-NCR. The firm’s growing geographical presence is also driving growth.

IGL increased sales volume from new areas such as Rewari, Karnal, and Muzaffarnagar; Haryana City Gas and the newly-awarded geographical areas in the 10th round, said Motilal Oswal Financial Services Ltd (MOFSL) analysts.

On the flip side, there are some near-term challenges. The second wave of covid is likely to have impacted gas sales volumes in Q1FY22. “Volume fall may hit margin but full benefit of CNG and residential PNG price made on 2 March 2021, despite no rise in domestic gas cost, would support margins," said analysts at ICICI Securities Ltd.

Also, negotiations with oil marketing companies for the increasing commission of gas sold through their retail outlets is being watched carefully. Any rise in rentals could lead to an impact on the margins of city gas distributors.

Analysts at MOFSL said despite assuming 10-12% y-o-y volume growth (in line with its historical average) in the current uncertain times, the stock trades at 25 times and 29 times FY23 consolidated and standalone earnings estimates, respectively. Its target price for the stock is about 10% lower than the current price.

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