Indraprastha Gas- Better‐than‐expected performance:: Prabhudas Lilladher

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

Indraprastha Gas- Better‐than‐expected performance:: Prabhudas Lilladher



Indraprastha Gas’ (IGL’s) Q3FY11 result was below our expectation on the top‐line
front, while it was above expectation on the bottom‐line front. Top‐line registered a
growth of 59.7% YoY to Rs4,571m (Rs2,863m) as against our expectation of
Rs4,694m. The lower‐than‐expected top‐line was largely on account of lower‐thananticipated
volumes during the quarter. However, EBITDA/scm was higher than our
estimates on account of lower‐than‐anticipated gas cost during the quarter. Raw
material cost was at Rs10.4/scm as against our expectation of Rs10.7/scm. Bottomline
during the quarter stood at Rs672m (Rs589m), registering an increase of 14.0%
YoY v/s our expectation of Rs647m during the quarter. We recommend a ‘BUY’
rating on the stock.

 Volume growth continues: CNG volumes increased 13.7% YoY to 155m/kg
(136m/kg), which was lower than our expectation of 159m/kg. PNG volumes
grew by a robust 92.4% YoY to 43.3mmscm (22.5mmscm), which also was lower
than our expectation of 45.2mmscm. Overall, total volumes came in at
249.2mmscm (207.0mmscm). OPM, during the quarter, contracted 843bps YoY
to 28.3% (36.7%) due to an increase in the gas cost and operating expenditure.
However, EBITDA/scm expanded during the quarter and stood at Rs5.19/scm as
against Rs5.08/scm in Q3FY10. Depreciation increased 32.8% YoY to Rs262m
(Rs197m) and 9.5% QoQ on account of capitalization of assets. Other income
dipped 81.4% YoY to Rs7m (Rs36m) on account of deployment of surplus funds.
Bottom‐line registered a growth of 14.0% YoY to Rs672m (Rs589m) mainly on
the back of a volume growth.

 Valuation: We believe IGL will be able to sustain such a healthy volume growth
over the next couple of years. The stock is currently available at 15x FY12E EPS
of Rs22.1 and 3.3x P/BV. We recommend a ‘BUY’ rating on the stock


Operating revenue lower than our expectation, up 59.7%: For Q3FY11, IGL reported
a 59.7% YoY increase in operating income to Rs4,571m (Rs2,863m), as against our
expectation of Rs4,694m. CNG volumes increased 13.7% YoY to 155m/kg i.e.
2.26mmscmd (136.1m/kg i.e. 1.94mmscmd), below our expectation of 159m/kg.
PNG volumes grew by a robust 92.4% YoY to 43.3mmscm (22.5mmscm), which also
was lower than our expectation of 45.2mmscm. This led to total volumes increasing
by 20.4% YoY to 2.71mmscmd (2.25mmscmd). Average gross CNG realisations were
higher on a YoY basis at Rs27.4/kg (Rs20.9/kg) due to the CNG price hike effective
from June 18, 2010 to Rs27.5/kg from Rs21.9/kg to pass through increase in APM gas
price. CNG prices were also revised upwards in the quarter by Rs0.25/kg on October
1, 2010. Average PNG realisations stood at Rs19.4/scm (Rs16.1/scm) due to price
hike taken during the trailing one year. During the quarter, prices of PNG for the
commercial users was increased to Rs35/scm from October 1, 2010.


OPM contracts by 843bps YoY to 28.3%: Gas sourcing cost increased 102.4% YoY to
Rs2,598m (Rs1,283m). Raw material cost during the quarter stood at Rs10.4/scm as
against our expectation of Rs10.7/scm. Gross gas spread, during the quarter, on a
YoY basis, stood higher at Rs7.9/scm (Rs7.7/scm) and the same was higher than our
expectation of Rs7.3/scm. Staff cost increased 25.2% YoY to Rs99m (Rs79m) owing to
increase in minimum wages, whereas other operating expenditure moved up 29.3%
YoY to Rs581m (Rs450m). OPM, during the quarter, contracted 843bps YoY to 28.3%
(36.7%) on account of an increase in gas prices and operating expenditure. Operating
profit grew 23.0% YoY and 3.6% QoQ to Rs1,293m (Rs1,051m) largely on account of
volume growth.


Depreciation increases on capitalization of assets; other income dips: Depreciation
during Q3FY11 increased 32.8% YoY to Rs262m (Rs197m) and 9.5% QoQ. Other
income dipped 81.4% YoY to Rs7m (Rs36m) on account of deployment of surplus
funds.


PAT up 14.0%, but above our expectation: Higher revenue growth resulted in
bottom‐line growing 18.4% YoY to Rs672m (Rs589m), which was above our
expectation of Rs647m, mainly on account of lower‐than‐anticipated gas cost.


Valuation: IGL has recently hiked CNG and PNG prices on account of the increase in
the blended gas cost for the company (on account of increase in the LNG
contribution of the overall procurement mix of the company). Going ahead, we
expect the share of LNG to increase from the level of 19.4% in FY11E to 35.5% in
FY13E; leading to an increase in the blended gas cost from Rs10.2/scm to Rs12.6/scm
in FY12E and Rs14.0/scm in FY13E. However, despite the increase in the gas cost, we
expect IGL to pass on the same to the end user, driven by various conversion
economics in the CNG. Thus, the margin erosion risk does not pose a threat. On the
volumes front, we believe the company will be able to sustain such a healthy volume
growth over the next couple of years. The stock is currently available at 15x FY12E
EPS of Rs22.1 and 3.3x P/BV. We recommend a ‘BUY’ rating on the stock