The Supreme Court (SC) has finally given its verdict in favour of Indraprastha Gas (IGL) as against the PNGRB, in the tariff revision case. The SC has rejected PNGRB’s recommendation of ~60% cut in IGL's margins (retrospectively from April 2008). The announcement doesn't impact IGL's earnings as it was already charging market-determined prices, but it will lift a major overhang from the stock and lead to re-rating.

Commenting on the investment rationale, Edelweiss Securities said,  ''We remain enthused about IGL's long-term growth prospects and margin trajectory, as CNG's competitiveness versus petrol/diesel (59%/24%) has enhanced significantly, while PNG penetration in households is on the rise due to convenience of usage. However, off-take in the industrial PNG segment (13% of sales) remains poor.

Following the 11% YTD rise in petrol prices, competitiveness of CNG has improved from 55% to 59%. Similarly, the diesel price rise by 4% YTD has improved CNG's competitiveness to 24% from 22%. Despite the sharp 10-12% rise in the stock price to Rs 455, valuations are not very rich at 14x FY16E and 13x FY17E, especially as we estimate IGL to register healthy RoE of 20.4% in FY16, steady earnings CAGR of 10% over the next 3 years and it has a debt-free balance sheet. We maintain 'BUY/SO' with a TP of Rs 524 (Rs 498 earlier).''

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