Home / Markets / Stock Markets /  This PNG, CNG supplier shares climb over 7% in 1 day, to pay 275% dividend. Should you buy?

Despite lacklustre demand in market, a major supplier of natural gas, Indraprastha Gas (IGL) witnessed massive buying on Tuesday. IGL shares skyrocketed by more than 7% during the day. IGL shares were in focus as the company held its 23rd annual general meeting where it sought shareholders' approval for a final dividend of 275% for fiscal year FY22. Emkay Global gives a 'buy' rating on IGL shares with a target price of 465 apiece.

On BSE, IGL shares closed at 422.75 apiece up by 26.95 or 6.81%. The shares were near the day's high of 424.80 apiece - resulting in an overall 7.33% upside in the day. Its market cap is around 29,592.53 crore.

The company held its 23rd AGM on September 27.

IGL has announced a dividend of 275 % i.e. 5.50 per share (face value of 2 each) for the financial year 2021-2. The shares have already turned ex-dividend on September 15. Now, post-AGM, the shares will be paid in due course.

In the latest report dated September 27, Sabri Hazarika and Harsh Maru analysts at Emkay said, "IGL is well placed currently post additional allocation with 90% of CNG+domestic PNG demand being met by domestic gas, and remaining being diverted from a contracted term LNG base of 2.3mmscmd, which is currently priced at $16/mmbtu. With growing demand, some spot is also being used currently – though overall margins in H2 of Q2 are robust. With monthly conversions decent at 15,000-16,000 (versus 17,000-18,000 peak), volume outlook is steady and the company expects to hit its 10mmscmd+ target by CY24. IGL’s planned CAPEX is ~Rs15 billion annually for the next few years, equally split between existing and new areas."

The analysts pointed out that IGL's associates – Central U.P. Gas (CUGL) & Maha. Natural Gas (MNGL) posted a growth of 37% and 18% in PNG volumes during FY22. Overall, volume stood at 0.3mmscmd and 1.0mmscmd for CUGL and MNGL, respectively. Unit opex declined due to operating leverage. MNGL’s net debt was largely flat at 3 billion, while CUGL turned further net-cash positive at Rs610 million. CUGL added over 50,000 and MNGL added over 150,000 domestic PNG connections, with total as of FY22-end at 0.17 million and 0.54 million, respectively.

Going ahead, the analysts said, "CUGL aims to expand its network and PNG customer base sizably. 28 CNG stations are targeted for FY23, totaling 102 by year-end. MNGL has also started expansion in newly won GAs like Nashik, while aiming at exponential growth going ahead. It has also set up an LNG station and has initiated CBG supplies in Pune."

Further, the analysts report said, "IGL has maintained its 10mmscmd+ standalone volume target by CY24, with monthly CNG vehicle conversions continuing to be decent at 15,000 (despite Rs75.6/kg Delhi RSP currently) and 100+ stations to be added annually. EBITDA/scm target remains at Rs7-8."

On the valuation, the report said, "We value IGL on a DCF-SoTP basis and maintain our Buy rating. Our Sep’23 TP of Rs465 per share implies a 15.3x Sep’24E target consolidated PE multiple. Key risks: Adverse pricing, margins, gas cost, and currency; EV adoption; and project delays."

In the first quarter of FY23, IGL 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.


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

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