Indraprastha Gas Ltd (IGL) gained more than 5% on Monday. The stock, that had been on a downtrend since mid-June, regained its lost ground post. Analysts say that the March quarter performance declared on Friday, however, remained a mixed bag. While gas sales volumes grew well, the operating performance saw some impact of higher costs.

The gas sales volumes at 614 million standard cubic meters in March quarter were up 8% year-on-year. Compressed natural gas (CNG) and piped natural gas (PNG) volumes rose 7% and 13% year-on-year and 9%/10% sequentially, respectively. Not only is the consumption of auto fuel, CNG and piped gas catching pace, but industrial-commercial PNG volumes also rose 27% year-on-year.

The net realization was up 1% sequentially, however, gas costs jumped 10%, said analysts. Hence, gross margin declined 6% sequentially to Rs13.6/scm (standard cubic meter) which was a 5% miss as per estimates of Emkay Global Financial Services Ltd. The declining operating expenses nevertheless supported and Ebitda grew 31% year-on-year. Ebitda per SCM at Rs8 was up 21% year-on-year, though slightly lower as per analysts’ expectations.

The company continues to be a strong beneficiary of the rising demand of cleaner and cheaper fuel (natural gas) in the Delhi NCR and adjacent geographical areas. It is looking to expand its presence to drive growth further.

IGL could increase its sales volume from new areas such as Rewari, Karnal, Muzaffarnagar, Haryana city gas, and the newly-awarded geographical areas in the 10th round, said analysts at Motilal Oswal Financial Services Ltd (MOFSL). The recently bagged areas include Kaithal (Haryana), Ajmer, Pali, and Rajsamand (Rajasthan), and Kanpur, Fatehpur, and Hamirpur (Uttar Pradesh).

On the flip side, there are some near term challenges too. The second wave of covid is likely to have impacted gas sales volumes in Q1FY22. “Volume fall may hit margin but the full benefit of CNG and residential PNG price made on 2 March 2021, despite no rise in domestic gas cost, would support margins," say analysts at ICICI Securities Ltd. ICICI Securities have cut their FY22 volume estimate by 4% to factor in the impact of the lockdown in Q1 but kept their margin estimate unchanged at Rs8/SCM.

Also, the negotiations with oil marketing companies for increasing the commission of gas sold through their retail outlets is being watched carefully. Any rise in rentals could lead to an impact on the margins of city gas distributors

Analysts at MOFSL say that despite assuming a 10-12% year-on-year volume growth (in line with its historical average) in the current uncertain times, the stock trades at 25x/29x FY23 consolidated/standalone earnings estimates.