>Indraprastha Gas (KARVY)

Since our last update on Indraprastha Gas (IGL) dated 4th February 2009, the stock has corrected by almost 9% to Rs 101. We believe that there has not been any adverse news for IGL and the fall in stock price is largely in line with that in the broad market. In our opinion, IGL's business model is relatively immune from any economic downturn and it is likely to benefit from compressed natural gas (CNG) sales growth during Commonwealth Games to be held in New Delhi and national capital territory (NCT) in 2010.

Petroleum and Natural Gas Regulatory Board (PNGRB) has approved IGL as the authorized entity in NCT, giving it three years marketing exclusivity and 25 years network exclusivity for city gas distribution (CGD) network within NCT.

IGL's Q3FY2009 results were depressed due to the provision of Rs 175 mn made for a disputed demand from the gas supplier, which might have adversely affected the stock price performance. However, the future growth prospects for IGL appear bright driven by increased conversion of private four-wheelers to CNG, acceleration in the conversion of light commercial vehicles (LCVs) to CNG and a sustained growth in piped natural gas (PNG) customers.

At current levels of Rs 101, the stock quotes at a P/E of 6.7x FY2010E EPS of Rs 15.1 and 2.8x EV/EBIDTA of FY2010E. We continue to value the stock based on one year forward EV/EBIDTA multiple of 5x with target price of Rs 155. We believe that the 5x multiple captures the concerns over the sustainability of margins.

To see full report: INDRAPRASTHA GAS