IGL at current valuations is ideal for a portfolio that is looking for protection incase of market crashes. The downside risk is negligible and the upside potential is quite good over the next 3 years.
Positives
1. Increased conversion of private cars (about 2500 cars per month). The total number of CNG vehicles in 2006 stood at 106k. The private car segment will increase it by another 50-60k vehicles.
2. Commonwealth games in 2010
3. Increased penetration of PNG over the next 2-3 years.
4. Expansion into Noida & Faridabad in the next couple of years and Panipat & Sonepat after 2009-10.
5. Railways using CNG for their locomotives (distant future).
6. Zero debt company and all expansions are being funded through internal accruals. Despite being a high Capex business it has no interest rate risk and equity dilution possibilities.
I think the company can very easily grow at a rate of 25% till 2010. My only concern would be the crowding of CNG pumps. I remember there used to be huge lines when CNG was initially introduced in Delhi. How is the scene these days ? Are there sufficient number of pumps to handle the increasing conversions ?
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