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INDRAPRASTHA GAS
Steady performance
Strong PNG volumes and higher blended realisation boost revenues
Indraprastha Gas’ (IGL) revenues for Q3FY11 grew 59.8% Y-o-Y and 2.2% Q-o-Q,
to INR 4,547 mn. Revenue growth was backed by higher PNG sales and higher
realisation in both CNG/PNG segments, marginally offset by 0.5% Q-o-Q dip in
CNG sales. Blended unit realisation was pegged at INR 18.5/scm (up 2.2% Q-o-Q)
after accounting for price hikes in both CNG and commercial PNG segments at the
beginning of the quarter. CNG sales volumes, at 154.8 mn kgs (up 13.7% Y-o-Y,
down 0.5% Q-o-Q) and PNG sales volumes, at 43.3 mn scm (up 92.4% Y-o-Y and
3.1% Q-o-Q), were in line with expectations. CNG’s retail price rose 1%, to INR
27.75/kg w.e.f. September 30, 2010, and has been subsequently hiked to INR
29/kg w.e.f. January 02, 2011. Blended realisation of PNG was also up 5.2% Q-o-
Q, to INR 19.4/scm, after retail prices of commercial PNG were hiked by 17.6% to
INR 33.3/scm w.e.f. October 1, 2010. IGL has subsequently also hiked prices of
domestic PNG to INR 18.95/scm w.e.f. January 2, 2011.
PAT at INR 672 mn, in line with estimates; unit EBITDA margins expand
Blended unit raw material costs were higher at INR 10.6/scm (up 1.9% Q-o-Q),
due to higher RLNG volumes sourced during the quarter. This was, however,
offset by higher unit realisation which resulted in expansion in unit EBITDA (up
3.05% Q-o-Q, at INR 5.2/scm). IGL also incurred interest expenses of INR 41
mn in Q3FY11 after raising loans in the previous quarter for funding its capex
plans. Overall, CNG and PNG sales as well as blended realisation were in line
with expectations. PAT was slightly above estimates at INR 672 mn (up 1.4% Qo-
Q and 14% Y-o-Y), against our estimate of INR 640 mn owing to below
expected blended raw material costs, operating expenses and interest costs.
Outlook and valuations: SOTP at INR 397/share; maintain ‘BUY’
Q3FY11 results were broadly in line with expectations with growth in PNG
volumes as well as higher CNG and PNG realisation (offset by marginal Q-o-Q dip
in CNG sales and higher unit blended gas costs). IGL has successfully passed on
price hikes to its customers in both CNG and PNG segments, and has been able
to increase its unit EBITDA margins by 305bps Q-o-Q. With robust outlook on
CNG and PNG sales, we are revising upwards our earnings estimates for IGL; our
revision factors in increased volumes in CNG and PNG segments as well as
higher unit realisation post price hikes. We are also revising up the fair value of
the stock for March 2012 to INR 397 (from INR 377 earlier) and maintain
‘BUY/Sector Outperformer’ on the stock. At CMP of 337, IGL is trading at P/E
of 18.1x FY11E and 16.2x FY12E earnings.
CNG volumes at 154.8 mn kgs, up 13.7% Y-o-Y
CNG volumes, at 154.8 mn kg (up 13.7% Y-o-Y but down 0.5% Q-o-Q), recorded a
marginal dip sequentially on the back of tepid sales during the quarter. Going forward,
CNG volumes are expected to further pick up momentum with LCVs converting to CNG
(as mandated by Delhi government) as vehicles renew their permits to ply in the state.
PNG volumes up 92.4% Y-o-Y with increased offtake from industrial customers
PNG volumes, at 43.3 mn scm, were higher 92.4% Y-o-Y and 3.1% Q-o-Q, mainly due to
increase in natural gas supplied to Faridabad (+11.6% Q-o-Q) and increased offtake by
commercial and industrial customers (+1.8% Q-o-Q), marginally offset by a dip in
domestic PNG sales at 8 mmscm (-4.8% Q-o-Q).
Unit realization higher on the back of price hikes in CNG/commercial PNG
Blended unit realisation was pegged at INR 18.5/scm (+2.2% Q-o-Q) after accounting
for price hikes in both CNG and commercial PNG segments at the beginning of the
quarter. CNG’s retail price rose 1%, to INR 27.75/kg w.e.f. September 30, 2010, and has
been subsequently hiked to INR 29/kg w.e.f. January 2, 2011. Blended realisation of PNG
was also up 5.2% Q-o-Q, to INR 19.4/scm, after retail prices of commercial PNG were
hiked by 17.6% to INR 33.3/scm w.e.f. October 1, 2010. IGL has also hiked prices of
domestic PNG to INR 18.95/scm w.e.f. January 2, 2011.
Outlook and valuations: SOTP at INR 397/share; maintain ‘BUY’
Q3FY11 results were broadly in line with expectations with growth in PNG volumes and
higher CNG/PNG realisation offset by marginal Q-o-Q dip in CNG sales and higher unit
blended gas costs. IGL has successfully passed on price hikes to its customers in both
CNG/PNG segments, and has been able to increase its unit EBITDA margins by 305 bps
Q-o-Q. With robust outlook on CNG/PNG sales, we are revising upwards our earnings
estimates for IGL to account for increase in volumes in CNG/PNG segments and higher
unit realization post price hikes. We are also revising upwards the fair value of the stock
for March 2012 to INR 397 (from INR 377 earlier). We maintain ‘BUY/Sector
Outperformer’ on the stock. At CMP of 337, IGL is trading at P/E of 18.1x FY11E and
16.2x FY12E earnings estimates.
Company Description
IGL is a joint venture, promoted by GAIL, BPCL, and the Delhi government. Incorporated
in 1998, the company has pioneered the commercialisation of CNG for the automotive
sector in Delhi. IGL operates in two business segments - CNG and PNG. The CNG
business, which contributed ~86% to the company’s total revenues in FY10, involves
distribution of CNG to automobiles through gas stations. Through its PNG business, the
company supplies natural gas to homes and commercial and industrial establishments.
Investment Theme
Natural gas is cheap, environment friendly, and is likely to be the most preferred fuel in
future. Factors such as low current penetration of natural gas in automobiles in the Delhi
region and growing demand of automobiles are expected to drive IGL’s CNG and PNG
growth. With its natural monopoly in Delhi and the adjoining areas, IGL has gained the
first-mover advantage by investing in gas infrastructure across Delhi. The Delhi
government’s approval to stop the registration of diesel-run mini trucks and other LCVs
in the state would help drive gas sales by 4.6% over the next eight years. Also, the PNG
business represents a long-term opportunity with low penetration of ~1% in the
domestic segment and ~18% in the small commercial segment. This opportunity is likely
to boost IGL’s sales, as it increases its geographical presence in Greater Noida,
Ghaziabad, Sonepat, and Panipat.
Key Risks
Difficulty in passing on higher prices of gas sourced from RLNG could impact its margins
and financials. Fall in crude prices or decrease in duties on petroleum products could
impact the CNG demand, as auto fuels would then be more competitive than CNG.
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