Schools remain closed and commuting to work is significantly down. Hence, one needs to watch out for normalisation and volume recovery for IGL. The company has told analysts that it expects volumes to start growing by the middle of Q3FY21 and is trying to achieve FY19 volumes in FY21 as a whole.
IGL, during the second half (H2) of FY21, will also benefit from reduction in price of gas under administered pricing mechanism. Nomura expects domestic gas price to reduce to $1.9-2 per mmBtu (million British thermal units) from $2.4 currently and, hence, IGL will get an opportunity to pass on costs.
IGL’s per unit margins are pegged at over Rs 7 per scm in H2 by Nomura and Rs 6.3-6.5 per scm by MOSL.
Yet, earnings are expected to decline 45 per cent in FY21 before a strong rebound in FY22, says MOSL.
Overall, while long-term prospects led by geographical expansion and increasing penetration remain strong, CNG volume recovery is the key trigger in the near term. Credit Suisse, MOSL, and Emkay Research maintain neutral ratings, but Nomura has a ‘buy’ rating, considering the volume recovery from FY22.