Incorporated in 1998, Indraprastha Gas Ltd (IGL) is the sole supplier of Compressed Natural Gas (CNG) and Piped Natural Gas (PNG) in the National Capital Region. The company is a joint venture between GAIL (India) Ltd and Bharat Petroleum Corporation Ltd. Its unique business model is a result of various business transfers, strategic modifications and client acquisitions giving the company an early-bird advantage in the market.
Valuation and view
Currently, IGL stock banks upon positive volume growth catalysed by swelling auto demand, likely increase in the quantity of DTC buses in NCR and the takeover of Maharashtra Natural Gas Ltd. Going further, the company’s tactical extension plans will aid it in differentiating its revenue and thus improving margins over the years. We remain hopeful on the Supreme Court’s awaited ruling on the PNGRB brawl as the apex court is working out a compromise formula.
At the CMP of Rs 422.0, the stock trades at P/E of ~11.0x FY16E. We recommend ‘BUY’ for this stock considering the aforementioned aspects with a target price of Rs 521.0 placing a P/E multiple of 14x for FY16E, which implies potential upside of ~24% to the CMP from 1 year perspective.