On Wednesday, CLSA adjusted its outlook on Indraprastha Gas Ltd. (IGL:IN) stock, reducing the price target to INR480 from INR600, while maintaining an Outperform rating.
The revision reflects a response to the company's second-quarter financials for fiscal year 2025, which did not align with analysts' expectations. Despite a notable increase in volume, the company's net profit fell short by 6% due to weaker-than-anticipated margins.
The management of Indraprastha Gas has provided guidance for a 9% year-over-year increase in exit rate to 9.5 million standard cubic meters per day (mmscmd) and anticipates a yearly volume growth of 8%-10% for fiscal year 2026. These projections come after considering recent policy changes that have led to a reduction in the allocation of low-priced legacy gas for city gas distribution networks.
As a result of these developments, CLSA has revised its earnings per share (EPS) estimates for fiscal years 2025-2026 downward by 20%-25%. Additionally, the firm has adjusted its target price-to-earnings (PE) multiple from 16.7x to 15.0x, which has influenced the new price target of INR480. This adjustment also accounts for a roll-forward to December 2025.
Despite the reduced price target, CLSA sees a 15% potential upside for Indraprastha Gas shares, leading the firm to reiterate its Outperform rating. The company's management has expressed confidence in their ability to raise prices without significantly affecting volume growth. They have also indicated that there may be a potential price hike in the near future to offset the recent surge in raw material costs.
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