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INDRAPRASTHA GAS (IGL)
PRICE: RS.330
RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.365
FY12E P/E: 13.7X
q Strong PNG revenue growth on QoQ basis due to better realizations and
higher volume growth lead to over all revenue growth on QoQ basis.
q CNG volumes marginally down 0.51% QoQ basis, realizations marginally
up 0.88% QoQ, resulting in flat CNG revenue 0.36% growth
q Revenue expected to improve going forward with the increase in realization and volume growth.
q As mandated by Delhi government, LCVs will be converted into CNG
which will boost the CNG sales.
q In Jan'11, IGL hiked the CNG and PNG prices which will improve the revenue and margins. This reflects its pricing power.
q The GOI has de-regulated the price of petrol as a result every month the
price can be revised based on the crude oil price. In a rising crude oil
price scenario, the petrol price is expected to increase. This gives an
edge to CNG uses over petrol users leading to more vehicles going for
CNG.
q Marginal increase in FY11 earnings estimates with EPS of Rs.19.2
q FY12 earnings estimates revised upwards with an EPS of Rs.24.1
n Revenue for Q3FY11 was at Rs.4.55 Bn up by 59.80% YoY and up by 2.16%
on sequential basis. Higher sales were a result of both increase in volume in the
PNG segment and price revision in CNG & PNG undertaken by IGL. However,
revenue is marginally offset by 0.5% QoQ basis dip in CNG volumes.
n During the Q3FY11, IGL sold 154.8 mn kg of CNG thereby registering 13.74%
YoY growth but 0.51% sequential fall. IGL sold 43.3 mn SCM of PNG in
Q3FY11 showing strong 165.64% YoY and 3.10% sequential growth.
n Segment wise revenue analysis: IGL has registered revenue of Rs.4.25 Bn in
CNG business resulting in 49.72% YoY and 0.36% sequential growth. However, PNG segment has registered revenue of Rs.835 Mn resulting in a
131.94% YoY and 7.85% QoQ growth.
n Blended gross realization is higher by 29.82% YoY basis and 1.42% QoQ basis
to Rs.20.4/Scm. On QoQ basis, the realization improved mainly due to 4.62%
growth in PNG segment. In Oct'10, IGL has marginally hiked CNG prices by
Rs.0.25/kg to Rs. 27.75/kg in Delhi and Rs.0.40/kg to Rs.31/ Kg in Noida,
Greater Noida and Ghaziabad.
n The company has recorded marginal improvement in the operating margin on
QoQ basis. In Q3FY11, the EBIDTA margin stood at 27.9%, which is up by
0.27% on QoQ basis but is down by 8.43% on YoY basis primarily due to
higher gas prices. In absolute terms, EBIDTA was at Rs.1.3 bn up by 22.7% YoY
and up 3.16% QoQ basis.
n The raw material cost as a percentage of revenue is up by 12.04% YoY basis
but is marginally down by 0.09% on QoQ basis. In order to meet the rising demand of natural gas, IGL not only source Krishna Godavari (KG)-D6 gas and Administered Price Mechanism (APM) gas but also source higher priced long-term
liquid natural gas as well as spot gas.
n The staff cost and other operating expenditure (as a percentage of sales) has
fallen marginally both on QoQ basis and YoY basis because of economies of
scale.
n Other income of the company is down sharply 42.2% on YoY basis to Rs.31
Mn due to use of funds for the capex of the company to expand into adjoining
areas of Delhi.
n The depreciation cost has gone up by 32.8% on YoY basis and 9.5% QoQ basis
to Rs.262 Mn as the company has expanded the number of stations in and
around Delhi.
n In Q3FY11, the Company paid an interest of Rs.41 Mn as against Rs.20 Mn in
Q2FY11 and nil in Q3FY10.
n PBT for Q3FY11 was at Rs.997 Mn up 12.0% YoY and up 0.32% on a sequential basis.
n Bottom line for Q3FY11 was at Rs.672 Mn up 14.0% YoY and marginally up
1.38% on sequential basis thereby translating into Q3FY11 EPS of Rs.4.8 and
CEPS of Rs.6.7.
n In Q3FY11, the PAT margin stood at 14.8%, which is down by 0.11% on QoQ
basis and down by 5.93% on YoY.
n For 9MFY11 EPS stands at Rs.13.6 and CEPS stands at Rs.18.8.
We believe the demand for gas will increase going forward due to mandatory conversion of LCVs to CNG when they will come for renew of permits and also due to
cost advantage over alternative auto fuels. In Jan'11, the Company has again hiked
the prices of CNG and PNG which reflects their pricing power. Hence, we are bullish on IGL with robust CNG and PNG demand outlook and recommend a ACCUMULATE with a price target of Rs.365/share.
IGL had increased prices of CNG in Oct-Dec 2010
n In Oct'10, IGL has marginally hiked the Compressed Natural Gas (CNG) prices in
Delhi, Noida, Greater Noida and Ghaziabad. Resulting in an increase of Rs.0.25/
kg to Rs. 27.75/kg in Delhi and Rs.0.40/kg to Rs.31/ Kg in Noida, Greater Noida
and Ghaziabad
IGL had increased prices of CNG and PNG in January 2011
n In Jan'11, IGL has hiked the Compressed Natural Gas (CNG) prices in Delhi,
Noida, Greater Noida and Ghaziabad. Resulting in an increase of Rs.1.25/kg to
Rs. 29/kg in Delhi and Rs.1.50/kg to Rs.32.5/ Kg in Noida, Greater Noida and
Ghaziabad.
n In Jan'11, the Company also increased the Piped Natural Gas (PNG) by Rs.2/scm
to Rs.18.95/scm up to the consumption of 90 SCM in four months in Delhi and
beyond the consumption of 90 SCM in four months, the applicable rate in Delhi
will be Rs 26/SCM. However, due to differential tax structure in the state of
Uttar Pradesh, the applicable price of domestic PNG to households in Noida,
Greater Noida and Ghaziabad would be Rs 20.42 per scm up to consumption of
90 scm in four months, which has been increased from existing Rs 18.32 per
scm. Beyond consumption of 90 scm in four months, the rate applicable in
these cities would be Rs 26 per scm.
CNG still attractive despite price hikes
We feel that even after the price hikes CNG would still lead to savings of ~63% in
terms of running cost compared to petrol driven vehicles at the current level of
prices in Delhi. While use of CNG would be ~28% cheaper as compared to diesel
driven vehicles. In Dec'10, petrol prices in the national capital were raised by Rs
2.94-2.96 per litre in sync with the rise in global oil rates. Around 350,000 vehicles,
including buses and auto-rickshaws, ply on CNG in Delhi and the national capital
region.
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