Book Partial Profit - Indraprastha Gas

Ali On Content / 13 Sep 2010

With assured supply the company will be able to cater to the demand and hence its topline growth is expected to be good in Q2 and Q3 of FY11. Our recommendation to investors is to book partial profit.

We had recommended Indraprastha Gas (IGL) to our investors in Issue No 5 dated February 15-28, 2010 when the scrip was trading at Rs 210. Our recommendation was backed by various factors such as the strong financial performance of the company, expected expansion plans of taking its number of CNG stations to 210 from the earlier level of 181, and last but not the least, good valuations. In addition to this, there were some additional factors like long-term exclusive rights, debt-free status, assured gas supply, consistent dividend payment history, and rising crude oil prices. We had placed a target price of Rs 270 in one year. Now at its current levels the scrip is trading at Rs 362, reflecting an appreciation of 72 per cent.

However, despite the target being achieved, our recommendation to investors is to book partial profit. There are some compelling reasons for the same, first of which is the Commonwealth Games that are to take place at Delhi and the NCR which will lead to a rise in demand for CNG for the duration of the event. With assured supply the company will be able to cater to the demand and hence its topline growth is expected to be good in Q2 and Q3 of FY11. Further, the company has expanded its network to 241 and is planning add more in FY11. Even its compressing capacity has been increased to 36.40 lakh kg/day (26.72 lakh kg/day). Thus, looking at the increase in capacity along with the demand potential, we expect a better performance by IGL. This should be profitable for the investors.