"Indraprastha Gas’ (IGL) Q1FY21 standalone and consolidated earnings per share (EPS) plunged 85- 86 per cent YoY, hit by fall in volumes and margins due to lockdown. Q1 earnings fall was steeper than our estimate despite volume decline being less steep due to big disappointment on earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin," note Vidyadhar Ginde, and Aksh Vashishth, research analysts at ICICI Securities.
To factor-in the disappointment in Q1 and continued lockdown, the brokerage has cut FY21E-FY22E EBITDA margin estimates by 22 per cent - 7 per cent and volume estimates by 3 per cent - 1 per cent, which has led to 22 per cent - 7 per cent cut in FY21E-FY22E EPS and 10 per cent cut in target price to Rs 310/share (25 per cent downside).
"Margin decline maybe earlier and steeper than estimated if the competition is allowed and the gas used for CNG is deregulated. Reiterate SELL," the brokerage said in a result review note.
Analysts at Antique Research note that the vehicular movement during the quarter under review was severely impacted due to lockdown imposed following the Covid-19 outbreak. The return to normalcy was rather slow, as lockdown eased, with complete normalisation yet to be achieved.
"As a result, we expect gas sales to stand YoY weaker in FY21, with recovery expected only in FY22. With prognosis appearing murky, we find the stock fairly valued at 22x FY22e and therefore maintain our HOLD rating on IGL with a target price of Rs 465 per share," the brokerage said.
Prabhudas Lilladher, on the other hand, has a "Buy" rating on the stock with the target price of Rs 590. "IGL remains an enviable business model with high volume growth due to geographical expansion along with the addition of new buses and taxis. Also, shift to private vehicle ownership post Covid pandemic to drive CNG volumes. IGL remains a play on rising pollution concerns, as the ban put on competing for industrial fuel is a major positive. The sharp drop in spot LNG prices offer new margin levers for the company," the brokerage said in a result review note issued on August 26.