The valuation of a stock is based on market perception. However we can use certain tools to arrive at the correct valuation for a company and in this segment we consider Indraprastha Gas Ltd (IGL). IGL has frequently raised prices of CNG and PNG. However, as the proportion of costly gas is expected to increase, we expect the
company’s margin growth to remain muted in the years ahead. Further, the
proposal to cap gas marketing margin by PNGRB remains an overhang on the
stock. The Supreme Court judgment on this issue is awaited.
- Based on our estimates, the stock at current market price of Rs.287 is trading at 4.8x EV/EBIDTA and 11.6x P/E on FY15E earnings.
- Based on our DCF valuation model, the fair value of IGL is Rs. 315.
