Indraprastha Gas shares: Amid Delhi govt's EV policy, here's what to expect from the clean energy stock

Shares of Indraprastha Gas Ltd (IGL) are in focus as the electric vehicle (EV) policy of the Delhi government is likely to affect volumes of the gas major. Nuvama Institutional Equities has trimmed its target price by 19% post Q2 earnings asserting that the policy is likely to hit 20% of volumes of the gas producer and distributor.

“The Delhi government approved the cab aggregator policy, which shall impact 15% of IGL’s total volumes over FY30E while a gradual conversion of DTC buses would further impact 5% of volumes. Current CNG volume breakdown: private cars 40%, cab aggregators: 20%, buses: 20%, 3W: 6%; and the rest from CVs and others,” said the brokerage.

It has retained a buy call on the stock and trimmed the target price by 19%.

However, the brokerage sees no impact of the policy on growth prospects.

"EVs are no threat to Indraprastha Gas and growth prospects are healthy. We estimate long-term impact of 20% from EV DTC buses and cab aggregator policy on IGL. However, robust volume growth shall sustain fuelled by expansion in new GAs. We are cutting FY25E EBITDA by 5% and target price by 19% to Rs 479; retain ‘BUY’, " said the brokerage.

Delhi Electric Vehicle Policy was launched on October 22, 2020 and was aimed at fighting high levels of air pollution.

In October end this year, the Kejriwal government approved the extension of the Delhi Electric Vehicles (EV) Policy till December 31, 2023 or till Delhi EV policy 2.0 is notified, whichever is earlier.

In the current session, Indraprastha Gas shares were trading flat at Rs 402.50 against the previous close of Rs 400.15 on BSE.

The large cap stock is trading lower than the 5-day, 10 day but higher than the 20-day, 50-day, 100-day and 200-day moving averages. IGL stock has lost 4.39% during the last one year and lost 4.12% since the beginning of this year.

Market cap of the clean energy firm stood at Rs 28,175 crore. Total 0.42 lakh shares changed hands amounting to turnover of Rs 1.67 crore. The large cap stock hit a 52-week high of Rs 515.55 on May 9, 2023 and a 52-week low of Rs 375.80 on November 1, 2023.

Jefferies in mid-October said the policy could impact 30% of IGL’s overall sales volumes starting FY25.

The brokerage downgraded the stock to hold with a target of Rs 465. The brokerage said Delhi government has submitted to the Delhi LG for final approval, an electric vehicle (EV) policy aimed at accelerating the adoption of EVs.

The Delhi government plans to achieve a 5 percent increase in EVs within fleets operated by companies such as Uber and Ola within the next six months, according to the policy. It has downgraded FY25/26 EPS by 7 /9% adding that lower valuation multiple to factor in growing EV risk.

Motilal Oswal has maintained its sell rating for Indraprastha Gas.

“Indraprastha Gas 2QFY24 EBITDA, at Rs 660 crore, came in line with our estimate. However, its profit after tax, at Rs 530 crore, delivered 24% beat. Volumes rose 3% YoY to 8.3 mmscmd during the quarter. We value the stock at 12x FY25E adj. EPS of Rs 25.1 and add value of JV at 25% holding company discount to arrive at our target price of Rs 350. We reiterate our Sell rating,” said Motilal Oswal.

Systematix Institutional Equities has fixed a target price of Rs 446 and held on to its buy call on the green energy firm.

“We believe normal growth in NCR regions and significant improvement in other GAs with the addition of interstate buses/ dumpers in its fleet shall help it to reach its estimated volume prediction. While we continue to maintain BUY on the stock, we reduce our PERbased target price to Rs 446 (vs Rs 556 earlier), based on 14x on FY25E as risk on long-term growth prospects due to the new EV policy remains an overhang,” said Systematix Institutional Equities.

The firm supplies CNG to automobiles and piped cooking gas to household kitchens in national capital and adjoining towns.

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