Shares of Indraprastha Gas Ltd. (IGL) gained as much as 3.8 percent to highest since its listing in December 2003 after it received approval to lay gas distribution network in Gurugram, near Delhi.
The approval potentially opens up a “whole new market” for IGL, broking firm Citi said in a July 16 investor note. The Gurugram supply may add Rs 5-6 to the company’s earnings per share, IDFC Securities said in a separate note.
Citi Research On IGL
- Rating: Maintain ‘Buy’
- Price Target Hiked To Rs 1,330
A Foot In The Door
IGL had been pursuing this case in the Supreme Court for years, but only earlier this year did hearings commence, with the court validating the central government’s authorisation to IGL and seeking a response from the Haryana state government. The latest development allows IGL a foot in the door of a new and very material market opportunity, and should arguably permit it to gradually expand to other parts of Gurugram over a period of time.
Positive Stock Catalyst
The brokerage firm had opened a positive Catalyst Watch on IGL last month in anticipation of a favourable resolution to the long-pending Gurugram dispute. According to them, access to the entire Gurugram market could lead to potential value accretion of Rs 155 per share, leading to a rise in their target price from Rs 1,250 to Rs 1,330 (50 percent probability earlier). Citi, however, would fine-tune these estimates as more clarity emerges on IGL’s expansion plans, the size of the market opportunity, and the estimated time frame of completion.
- The broking firm expects the company to post a 9 percent compounded annual growth rate despite the high FY17 base.
- The presence of a meaningful opportunity size in Gurugram.
- New geographical growth opportunities in three new cities, a potential stake increase in Pune and Uttar Pradesh. There is also scope for partnering with GAIL in eastern India CGDs.
Citi estimates that IGL’s Q1FY18 results should be strong on the back of margin improvement.