NTPC reported improved operating performance in the first quarter on the back of improved fuel quality 2) higher sourcing of domestic coal 3) sharp rise in incentives from higher PLF. We value the stock at 1.5x FY18 BV (as against 1.3x FY18 earlier), thus arriving at target price of Rs 182 (Rs 160 earlier) on account of 1) large capacity pipeline to be commissioned in the next three years 2) increasing investment in renewable power which will have lower capital stuck in CWIP. In view of the moderate upside to the stock price, we maintain "ACCUMULATE" thereby advising investors to buy the stock on declines.
Result Update: Indraprastha Gas (IGL)
¾ IGL's results are better than our estimates. In Q1FY17, IGL's PAT has increased 38% qoq to Rs.1.48 bn (45% yoy) mainly on account of lower raw material cost and marginally lower other expenses. Gross margin has meaningfully increased by 17.7% qoq to Rs.4.2 bn (23.2% yoy) reflecting significant decline in raw material cost. Raw material cost has declined 9% qoq to Rs.4.8 bn (-15% yoy) due to fall in gas prices. IGL's overall sales volume has increased double digit by 13.4% yoy to 395 mmscm (6.1% qoq).
¾ We expect IGL to book CNG gas volume of ~880 mn Kgs and PNG volume of 360 mmscm in FY17E. Similarly, we model CNG gas volume of ~955 mn Kgs and PNG volume of 378 mmscm in FY18E. We expect an EPS of Rs.40.9 & cash EPS of Rs.54.4 for FY17E and an EPS of Rs.42.4 & cash EPS of Rs.56.3 for FY18E. Based on our estimates, the stock at current market price of Rs.729 is trading at 8.2x EV/EBIDTA and 17.2x P/E on FY18E earnings. We believe that stock is fairly valued at current price and hence we maintain ACCUMULATE (buy on dips) rating on IGL with DCF based revised price target of Rs.790 (earlier Rs.608). Expected decline in gas prices from 1st October will boost margins and gas volumes, we opine.
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