New Geographical Areas and Higher CNG Car Conversion to Drive Volume Indraprastha Gas (IGL) volume clocked a robust 11% CAGR over FY15-FY20, driven by a strong 10%, 15% and 14% growth in CNG, domestic PNG and industrial/commercial segments, respectively. Mandatory CNG conversion of radio/inter-city cabs and LCVs and a strong rise in the number of DTC fleet were the key volume drivers in the past. Looking ahead, we believe IGL's volume growth will be driven by: (1) expected ~1.7mmscmd volume (32% of FY21 total sales volume) from new geographical areas; (2) expected ~0.6mmscmd volume (11% of FY21 total sales volume) led by pollution control norms to push the growth of PNG industrial in NCR; still a sizeable number of industries to switch to PNG industrial; (3) likely savings of 51%/47% in CNG-fueled vehicles vs. petrol/diesel-driven vehicles, respectively, which will fuel the growth in conversion of cars to CNG; and (4) PNG domestic gas prices are 37% cheaper than the LPG non-subsidized cylinder. Very Limited Disruption to CNG Volume Growth Story in Delhi In the near future, we do not see major threat to the conversion of cars to CNG. Based on our preliminary analysis, the total cost of ownership (TCO) of CNG cars is Rs7/km, compared to Rs11/km for electric cars. In Delhi, the EV vehicle addition rate for 2QFY22 was ~3,000 per month, though the majority of registered EVs are e-rickshaws, followed by electric two-wheelers and a very minimal number of EV cars. The share of electric vehicles in new vehicles registered in 2QFY22 was only 3.3%. However, the overall conversion of vehicles to CNG and new registrations of CNG have reached 15k/month. CNG cars (private + cabs + taxi) contribute ~50% to IGL's total CNG sales volume. Going forward, we expect CNG car conversions to accelerate from the existing fleet of petrol and diesel due to the high fuel prices. We expect a healthy conversion of CNG cars to contribute to a CNG volume CAGR of 21% during FY21-FY24E. 3W auto rickshaw conversion to the electric mode and removal of cap on auto rickshaw permits could be a drag on CNG volume growth. Based on our preliminary analysis, TCO for an electric auto rickshaw stood at Rs1/km (if charging at Rs4.5/KWh), and TCO is slightly higher for electric auto rickshaw as a battery swapping option (Rs150 for a single swap). In comparison with electric auto rickshaw, TCO for CNG 3W auto rickshaw stands at Rs3/km, which is higher than the electric auto. As per the current Govt policy, only 1 lakh 3W auto rickshaws can be converted into the electric mode in Delhi, and we estimate this could translate to a 7% CNG volume loss for IGL in FY24E. Attractive Valuation; Reiterate Buy IGL underperformed the broader index by 20% over the last one year, as restricted movement of vehicles during the pandemic hit FY21 CNG volume by 22% YoY (CNG accounts for ~70% of IGL's overall FY21 volume). However, we expect CNG sales to rise going ahead given (1) receding pandemic concerns; (2) expanding vaccination coverage; (3) continued preference for personal mobility; and (4) favorable fuel economics (CNG ~51% cheaper to petrol). IGL's valuation appears to be inexpensive, as we believe the stock does not reflect the likely 19% volume CAGR over FY21-24E and the expected EBITDA margin of ~Rs8.5/scm in FY24E. We raise the revenue estimates by 2% and 21% for FY22E and FY23E, respectively and have introduced FY24 estimates. In the last 3 months, street has raised the consensus EPS estimates of IGL by 21%/6% for FY23E/FY24E respectively. We value the company's standalone business at Rs580 (DCF basis), and its 50% stake in Maharashtra Natural Gas (MNGL) and Central UP Gas at ~Rs41 (13x FY24E EPS). We maintain our BUY rating and have shifted to a 1-year target price from the earlier 2-year. As we enter 2HFY22, we roll forward the SOTP valuation to FY24E and increase the target price to Rs622 (earlier Rs602). The target price of Rs622 implies a PE multiple of 23.4x FY24E EPS, which is a 6% discount versus the last 1-year average 1-year forward PE multiple of IGL (Bloomberg Consensus). Link to the report Shares of Indraprastha Gas Limited was last trading in BSE at Rs. 477.00 as compared to the previous close of Rs. 491.35. The total number of shares traded during the day was 88880 in over 2809 trades. The stock hit an intraday high of Rs. 495.35 and intraday low of 475.40. The net turnover during the day was Rs. 43086678.00.

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