Why Indraprastha Gas stock soared 7% today

Indraprastha Gas Ltd, a natural gas distribution company co-promoted by state-controlled oil and gas firms BPCL and GAIL, was among the buzzing stocks on Thursday and saw its share price rocket over 7% in a strong Mumbai market.

So, what’s driving the bulls to its counter?

The immediate impetus seems to be buy calls by some brokerage houses after robust earnings performance for the first quarter ended June 30.

IGL posted 155% rise in net sales to Rs 3530 crore over the year-ago period with net profit shooting up 72% to Rs 421 crore.

This was boosted by better-than-expected rise in volumes. IGL saw volume in Q1 FY23 improve to 7.9 million standard cubic meters (up 4% on a sequential basis) as economic activity picked up.

CNG and PNG volumes were pegged at 5.9 mscmd (up 6% QoQ) and 2.1 mmscmd (almost flat sequentially), respectively.

The gross margins in the quarter was up at Rs 18.7/scm (Rs16.2/scm in the preceding quarter ended March 31, 2022), while EBIDTA/scm stood at Rs 8.5/scm.

One risk factor with the stock is the rising gas cost that remains a worry, Domestic gas price has increased to $10.5/mmbtu in Aug-22 compared to $8/mmbtu in Jun-22. The higher gas cost is attributed to increased blending of high-cost spot LNG volumes as domestic supplies trail demand.

However, as new supplies from the KG-D6 block of 12 mmscmd will likely start from October and gradually increase, this is expected to ease the pricing pressure.

The other risk factor for the long term is spread of electric vehicles as replacing CNG, which is cheaper that petrol and diesel. But the ability to push for EVs is limited in the short to medium term due to lack of vehicles and charging infrastructure as also the strained resources of the state governments who are otherwise expected to push for EVs in public as well as private transport.