India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
IGL – 3QFY2011 Result Update
Angel Broking maintains a Neutral on IGL
IGL’s 3QFY2011 result was marginally below our expectation both on the top-line
and bottom-line fronts. Top-line registered a growth of 59.7% yoy to `457cr
(`286cr) as against our expectation of `461cr. Bottom-line during the quarter
stood at `67.2cr (`58.9cr), registering a yoy increase of 14% and was marginally
lower than our expectation mainly on account of higher interest cost and lowerthan-
expected other income. We had projected bottom-line to come in at `70.2cr
during the quarter. We maintain Neutral on the stock.
Robust volume growth continues though marginally below expectation: CNG
volumes increased 13.7% yoy to 2.2mmscmd (1.94mmscmd), marginally below
our expectation of 2.24mmscmd. PNG volumes grew by a robust 92.4% yoy to
0.47mmscmd (0.24mmscmd) and also came in below our expectation of
0.51mmscmd. Thus, total volumes grew 18.9% yoy to 2.67mmscmd
(2.25mmscmd), which was below our expectation of 2.75mmscmd. OPM
contracted by 843bp yoy to 28.3% (36.7%) on account of the increase in gas
prices and higher contribution from the domestic PNG segment. Depreciation
increased 32.8% yoy to `26.2cr (`19.7cr) and 9.5% qoq due to capitalisation of
assets. Interest cost also came in higher at `4cr. Higher revenues resulted in
bottom-line growing 14% yoy to `67.2cr (`58.9cr).
Outlook and Valuation: The hike in CNG and PNG prices has reduced concerns
on the margin front. However, we expect margins to hover around current levels
of ~`7.5/scm. We believe that the stock already factors in the ~17% CAGR
expected in earnings over FY2010-12 with RoE of ~27%. Also, we do not see
immediate triggers for the stock except for winning the bid outside NCR for the
city gas distribution. On the valuation front, at `338 the stock is available at18.3x
and 16.0x FY2011E and FY2012E earnings, respectively. We have arrived at a
fair value of `345 for the stock assigning a forward P/E of 16.5x on FY2012E
earnings. Hence, we remain Neutral on the stock.
Operating revenue marginally below expectation, up 59.7% yoy: For 3QFY2011,
IGL reported a 59.7% yoy increase (marginally below our expectation of `461cr) in
operating income to `457cr (`286cr) mainly on account of robust volume growth.
CNG volumes increased 13.7% yoy to 154.8mnkg or 2.2mmscmd (136.1mnkg or
1.94mmscmd), which was below our expectation of 157.6mnkg or 2.24mmscmd.
PNG volumes increased by a robust 92.4% yoy to 43.3mmscm or 0.47mmscmd
(22.5mmscm or 0.24mmscmd) and was also below our expectation of 47mmscm
or 0.51mmscmd. This led to total volumes increasing by 18.9% yoy to
2.67mmscmd (2.25mmscmd), which was lower than our expectation of
2.75mmscmd.
Average gross CNG realisations were higher on a yoy basis at `27.4/kg
(`20.9/kg) due to the hike in CNG price to `27.5/kg from `21.9/kg effective from
June 18, 2010 to pass through the increase in APM gas price. Average PNG
realisations also stood higher on a yoy basis at `19.4/scm (`16.1/scm) due to the
price hike taken to pass through higher gas cast.
OPM contracts by 843bp yoy to 28.3%: Gas sourcing cost increased 102.4% yoy
to `260cr (`128cr) during the quarter, which was lower than our expectation of
`275cr. Gas cost per scm on a yoy basis increased to `10.6/scm (`6.2/scm) as
against our expectation of `10.8/scm. Higher gas cost was on account of the
increase in APM gas price effective from June 8, 2010 and procurement of RLNG
and KG-D6 gas for incremental volume growth. Gross gas spread during the
quarter stood higher at `8/scm (`7.6/scm) on a yoy basis, and also exceeded our
expectation of `7.4/scm. Staff cost came in higher by 25.2% yoy to `9.9cr (`7.9cr)
owing to the increase in minimum wages, whereas other operating expenditure
moved up 29.3% yoy to `58.1cr (`45cr). Thus, OPM contracted by 843bp yoy to
28.3% (36.7%) on account of the increase in gas prices and higher contribution
from the domestic PNG segment. Operating profit grew 23% yoy to `129.3cr
(`105.1cr) mainly on account of higher volume growth.
Depreciation, interest cost increase; other income dips: Depreciation during
3QFY2011 increased 32.8% yoy to `26.2cr (`19.7cr) and 9.5% qoq on account of
the capex incurred during the year. Interest cost also came in higher at `4cr, which
we had expected to be nil. Other income dipped 81.4% yoy to `0.7cr (`3.6cr) due
to deployment of surplus funds and was lower than our expectation of `3cr.
PAT up 14%, but below our expectation: Higher revenue growth resulted in
bottom-line growing 14% yoy to `67.2cr (`58.9cr), which was below our
expectation of `71cr, mainly on account of lower-than-expected other income and
higher interest cost.
Segment-wise performance
CNG and PNG maintain robust growth in volumes: On a sequential basis, IGL’s
CNG volumes came in flat, whereas yoy volumes increased by 13.7% to
2.2mmscmd (1.94mmscmd) primarily on the back of growth in CNG vehicle
conversions. PNG volumes grew 3.1% qoq to 0.47mmscmd (0.46mmscmd) on the
back of expansion in the pipeline infrastructure. On a yoy basis, PNG volumes
grew by a robust 92.4%.
CNG, PNG realisation up sequentially: Net CNG realisations stood higher on a
qoq basis at `23.9/kg (`23.6/kg) due to the 25 and 40 paise hike in CNG prices
effective from October 1, 2010 in Delhi and NCR to `27.75/kg (from `27.5/kg)
and `31/kg (from `30.6/kg), respectively. PNG realisations rose 5.2% qoq to
`19.4/scm (`18.4/scm) on account of pass through of higher gas cost. Net CNG
revenues stood flat qoq at `371cr (`368cr), while PNG sales registered a growth of
8.5% qoq to `84cr (`77cr).
Investment Arguments
Rising input cost not a major concern: The proportion of LNG as a gas source is
expected to increase on account of stagnant domestic production of natural gas.
This will increase the gas sourcing cost in the coming quarters. However, IGL’s
ability to pass through any kind of increase in cost reduces our concerns over
margin erosion. It recently raised the CNG prices for automobiles from ` 27.8 to
`29.0 per kg. Prior to this hike, post the increase in the APM gas price the CNG
rates in Delhi had been hiked by `5.6/kg to `27.5/kg from `21.9/kg. The PNG
price was also hiked by ~`1/scm.
Deregulation of auto fuels favourable: The retail price of petrol has already been
deregulated, while diesel deregulation is being strongly proposed by the petroleum
ministry. Thus, the conversion economics remain strong for CNG users. Increase in
crude oil price will also have an implied impact on the petrol, diesel and LNG
prices simultaneously. Hence, any increase in the cost of sourcing gas could easily
be passed through, as the prices of other auto fuels would have also been raised.
CNG vehicles continue to offer savings of around 60% over the petrol driven
vehicles keeping CNG economics over the auto fuels favourable.
Volumes to propel profitability: IGL has 241 CNG stations, with more than 200
operational and the remaining awaiting final clearance. Apart from these 241
stations, another 39 stations are under construction. Moreover, in Delhi,
penetration of the CNG vehicles is still at lower levels and launch of the newer
CNG variants cars by the automotive companies could keep conversions in high
growth orbit. We expect CNG volumes to register a CAGR of 14% over
FY2010-12. Going ahead, we expect CNG volumes to rationalise post the
scorching growth witnessed in the last two years (the Commonwealth Games lent a
significant boost to volumes). The PNG segment is expected to continue its robust
performance on account of lower penetration in NCR and higher demand. Now
with most of IGL's CNG infrastructure in place, it has turned its focus towards the
fast-growing PNG segment. IGL expects to add 50,000 domestic users annually.
With this, we expect the PNG segment volumes to post a robust CAGR of 63% over
FY2010-12E.
Overall, we expect IGL to register 16.9% CAGR in total volumes over FY2010-12
on the back of robust volume growth in CNG and PNG. We estimate revenues to
register a robust CAGR of 26% over FY2010-12E on the back of strong volumes
and higher realisations. Thus, we estimate bottom-line to register 12% CAGR over
the mentioned period
Outlook and Valuation
The hike in CNG and PNG prices has reduced concerns on the margin front.
However, we expect margins to hover around current levels of ~`7.5/scm. Further,
relative ease in pass through of the APM gas price hike is indicative of the absence
of regulatory risks in the near term. We have assumed marketing margins to be
self-regulated due to competitive forces and not being subject to PNGRB
regulations. However, any kind of stringency by PNGRB to adhere to their
guidelines and restrict RoE to 14% post tax could pose a major downside risk to the
stock. We expect IGL to report RoE of 28% in FY2011 and 27% in FY2012.
On the valuation front, at current levels the stock is available at18.3x and 16.0x
FY2011E and FY2012E earnings, respectively. We have arrived at a fair value of
`345 for the stock assigning a forward P/E of 16.5x on FY2012E earnings. We
believe that the stock factors in the ~17% CAGR expected in earnings over
FY2010-12 with RoE of ~27% in FY2012E. We also do not see immediate triggers
for the stock except for winning the bid outside NCR for the city gas distribution.
Thus, with most of the positives factored in, we maintain our Neutral view on IGL.
No comments:
Post a Comment