Japan-Based Brokerage Nomura Analyzes IGL

Key Points

• Nomura upgraded IGL to ‘Buy’ due to lower gas costs.
• IGL’s target price is ₹230, reflecting this positive change.
• Mahanagar Gas (MGL) also rated ‘Buy’ with a target of ₹1,510.
• Lower gas prices from the US (Henry Hub) benefit CGDs.
• IGL uses 18% Henry Hub contracts, while MGL uses 30%.
• Oil prices and global trade flows are also considered.

Nomura, a stockbroker based in Japan, has changed its opinion about Indraprastha Gas Ltd (IGL). They’ve now given IGL a “Buy” rating, which means they think the stock will likely go up in value. This change is based on two main reasons: gas prices are expected to fall, and IGL’s stock price has dropped recently.

Specifically, Nomura believes that gas prices linked to the US (called Henry Hub) will get cheaper. This is good news for companies like IGL that buy gas through these contracts. They’ve set a target price for IGL’s stock at ₹230.

They also gave a “Buy” rating to Mahanagar Gas Ltd (MGL), another gas company. MGL’s target price is ₹1,510. This is because the same thing is expected to happen with MGL—lower gas prices will help them make more profit.

The reason for the expected lower gas prices comes from the US. Gas prices connected to the Henry Hub fell by 5% last week and were up 32% in the previous quarter. This decrease is helping Indian gas distributors (CGDs) like IGL and MGL.

It’s important to know that IGL uses about 18% of its gas from Henry Hub contracts, while MGL uses 30%. This means that a drop in these gas prices will have a bigger impact on MGL’s profits.

However, Nomura is also watching what’s happening with oil prices. Lower oil prices could make it less attractive for companies in the US to drill for new oil. This is because the costs of drilling are high, and they need oil prices to be high enough to make it worthwhile.

Furthermore, the price of Russian oil is also a factor. India is buying more Russian oil than before, and the discount on this oil compared to other oils is getting wider. This is happening because China is buying a lot of Russian oil too.

Even with these changes in the global oil and gas markets, Nomura still thinks that IGL and MGL are good investments. They believe that the near-term gas price relief will continue to support these companies’ profits.

“Lower gas prices are expected to drive growth in Indian CGDs.”