Indraprastha Gas – Growth Ahead – Buy

Indraprastha Gas Ltd is expected to thrive on the back of higher scope for penetration, sustaining conversion rate and price advantage. Volumes to double in next 5 years backed by low CNG penetration in Delhi (13% of three & four wheelers) and expansion into Noida and Ghaziabad markets. Will benefit from Increasing CNG variants being introduced by OEMs (Eg: Toyota Corolla, Altis). Lower cost/ km compared to auto fuels (45-66%) gives CNG a natural advantage.

CNG prices in Delhi are the lowest in the country and gives cushion to IGL to increase prices. Total price hike of Rs 2.8/ kg in the last 10 months shows superior pricing power of IGL. In case gas price gets de-regulated, IGL still has the ability to pass on the price increase.

Capex of Rs 1,600 cr (FY10-FY13) will ensure limited competition in future years. 2.5 mmscmd APM gas from GAIL for NCR, 0.31 mmscmd with RIL and 0.25 mmsmcd from BPCL. Strong parentage (GAIL & BPCL) ensures future gas linkages.

Indraprastha Gas is expected to report an EPS of Rs 18 and Rs 21 for FY 11 and FY 12 respectively. Investors can BUY the stock and add on Decline.