IGL share price may rise 25% in the next one year

Indraprastha Gas Ltd (IGL) supplies compressed natural gas to over 11 lakh vehicles in the national capital region through a network of over 520 CNG stations. It also sells piped natural gas to over 12 lakh household kitchens in the national capital and adjoining towns. Natural Gas is the cleanest and most efficient of the fossil fuels and has the potential to play an important role in the world’s transition to a more affordable and secure cleaner energy future. Because of its high energy content it provides substantial environmental benefits, such as improved air quality and reduced carbon emissions. World energy demand has been increasing steadily with Natural Gas accounting for nearly half of increased consumption continuing to replace coal for electricity generation with India’s energy demand outpacing global demand growth. Since the country has been heavily dependant on high polluting fuels such as coal and furnace oil to meet its ever growing energy needs, the government has set an aggressive target to double the share of natural gas from the current level of six percent in the next few years. The City Gas Distribution (CGD) business is emerging as one of the fastest growing sectors in the country and is expected to take centrestage as a priority sector, with several programmes and initiatives being announced to bolster city gas demand. The total investment earmarked for setting up of CGD networks in the country is going to be over Rs one lakh crore and is going to throw huge opportunities for companies like Indraprastha Gas Ltd and Gujarat Gas Ltd. This will also boost the infrastructure sector and generate employment in the skilled and non-skilled categories. In this regard, thrust has been given to increase domestic gas production, encourage import of Liquified Natural Gas (LNG) and augment faster roll out of city gas distribution network across the country. Q3FY20 earnings for Indraprastha Gas were in line with analyst expectations helped by steady margins and volume growth. The benefits from cheap gas has led to high gas demand with elevated margins on the back of robust vehicle and household demand. For Q3FY20, it clocked CNG sales volume growth of 9% while piped natural gas recorded volume growth of 18% with net profit higher by 43% at Rs 283 crore as against of the same period of the last fiscal. The inclusion of IGL stock in the Morgan Stanley International India index should add a lot of long term portfolio investors and hence the stock quoting at Rs 485 can be bought for a 25% price appreciation in the next one year. With the company secured on the demand front on the back of huge expansion plans in neighbouring UP, Rajasthan and Haryana, the IGL stock is potentially is a good fundamental buy.

Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.