Home / Markets / Stock Markets /  Major CNG, PNG supplier to turn ex-dividend on 15 Sept, to pay 275% dividend. Should you buy?

CNG and PNG supplier, Indraprastha Gas (IGL) shares climbed more than 1% on Tuesday ahead of its 275% dividend record date. IGL shares will turn ex-dividend tomorrow ahead of their record date to determine eligible shareholders for the dividend benefit for fiscal year FY22. IGL is a large-cap stock, which is engaged in the business of supplying natural gas to customers in the domestic and commercial sectors. Experts are optimistic about the company going forward due to its strong volume growth and pricing power in the core CNG segment.

IGL shares closed at 429.90 apiece up by 0.93%. The shares jumped by at least 1.2% on BSE during the day with an intraday high of 431 apiece.

The company's market valuation is around 30,093.03 crore.

IGL shares have advanced nearly 4% so far in this week's trading session. In the last three months, the shares have given double-digit growth with gains of over 26%.

Indraprastha Gas dividend

Indraprastha Gas has declared a dividend of 5.5 per share having a face value of 2 each (275%) for financial year FY22.

Last month, Indraprastha Gas announced that "share transfer books of the company shall remain closed from September 17, 2022, to September 27, 2022 (both days inclusive) for the purpose of Annual General Meeting and ascertaining the eligibility for payment of dividend."

Thereby, the shares of Indraprastha Gas will turn ex-dividend on September 15.

The company is set to hold its 23rd annual general meeting on September 27, where it will seek shareholders' approval for the dividend among other key developments.

Should you buy Indraprastha Gas shares?

Avishek Datta, Research Analyst at Prabhudas Lilladher in post Q1 report said, "We increase our FY23/24E earnings higher by ~3% as we lower depreciation charges while we maintain our volumes and margins in a rising gas cost environment."

Datta's note added, "In the near term, the rising price of domestic gas supplied to City Gas Distribution (CGD) due to blending of high priced spot LNG volumes will be a concern (even though company passed it on to customers)."

However, the analyst's note added, "RILKGD6’s higher blending with additional deep water supplies of 12mmscmd (to gradually ramp up) from Oct-22 will ease pricing pressure. CGD industry has made representation to the government of rising gas prices and company remains hopeful of near term solution."

On the valuation, Datta's note said, "IGL remains an enviable business model with high volume growth due to geographical expansion and addition of new buses and taxis. Reiterate “BUY" with DCF-based PT of Rs576 (Rs589) as we lower the depreciation amount in line with Q1 trends."

In Q1FY23, Indraprastha Gas posted a consolidated net profit of 481.24 crore compared to 277.95 crore in the same quarter last year. Consolidated revenue from operations rose by over 2.5 folds to 3,530.34 crore against 1,380.49 crore in Q1FY22.

During the first quarter of FY23, the company's volumes improved at 8.0mscm (+4% QoQ; PLe 6.9) as economic activity picked up. For Q1FY23, CNG and PNG volumes were at 5.9mscmd (+6% QoQ) and 2.1mmscmd (flat QoQ), respectively.

Talking about the overall city gas sector in the latest report dated September 12, HDFC Securities stated that "City Gas Distribution (CGD) companies, Indraprastha Gas (IGL), Gujarat Gas (GGL), and Mahanagar Gas (MGL) have corrected by 26-29% over the last 12 months, underperforming the BSE Sensex by 28-31%, as investors expected sustained margin pressure with rising input gas costs."

According to the HDFC Securities report, the correction is believed to be overdone especially as the CGDs have passed on the input gas cost increase underscoring their pricing power, the government has tweaked the domestic gas supply to favour the CGDs and CNG/DPNG (domestic piped natural gas) volume has seen the minimal adverse impact of the retail price increases.

Indraprastha Gas is HDFC Securities' preferred pick within the CGD space due to its strong volume growth and pricing power in its core CNG segment. The stock broker has given a buy rating with a target price of 520 on the company.

 

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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