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Indraprastha Gas Limited
Investment Rationale
Demand still robust in NCT of Delhi and NCR for CNG: Compressed Natural
Gas (CNG) volumes (~90% of total volumes) grew at a CAGR of 15% between FY07-10
led by private car conversions due to favourable pricing of CNG. Considering the beneficial
pricing scenario (CNG being 67% cheaper than petrol and 36% than diesel) as well
as robust CNG demand in the operational areas, we expect CNG volumes to grow at
18% Y-o-Y from FY10 to FY13. With a view to cater to the increasing demand, IGL plans
to add 40 CNG stations in FY11 (241 stations in FY10) and 30 CNG stations in FY12
and FY13 each.
PNG segment set to become the next growth driver: The Piped Natural Gas
(PNG) segment which includes the relatively under penetrated domestic households and
industrial/commercial customers is expected to be the key catalyst for growth going forward.
On the back of strong volume growth from the relatively high margin industrial
segment, we expect PNG volumes to grow from 87 MMSCM in FY10 to 398 MMSCM in
FY13 (CAGR of 66%).
End of Marketing Exclusivity should not pose a hurdle in Delhi: The biggest entry
barrier for any new player in CGD business in Delhi is the non-availability of cheap
gas (APM gas or KG-D6) gas. The government has allotted 2 MMSCMD of gas to IGL
for its Delhi operations which is currently utilized fully. In the event of the government increasing
the allocation of APM or KG-D6 gas in Delhi, IGL would get first preference
over any new player with its already established network in Delhi.
Ability to pass on high input costs: Historically, IGL has consistently been able to
pass on cost increases by way of price hikes of CNG which has helped in sustenance of
margins. With blended cost of gas expected to be Rs 13.16 per SCM in FY13 as compared
to Rs 5.96 per SCM in FY10, gradual price increases (recently hiked prices by Rs
1.25 per SCM with effect from Jan 1, 2011) would be a key to sustain its margins. With
petrol and diesel prices expected to increase going forward, we believe IGL should not
find it difficult to pass on cost increases by way of price hikes.
Outlook & Valuation: Driven by robust demand in the CNG segment and increasing
revenues from PNG segment led by industrial volumes, we expect IGL’s revenues to
grow at a CAGR of 45% over FY10-13E. The aggressive expansion plans for establishing
the CNG and PNG infrastructure in the operational areas of IGL will reap rich dividends
going forward. At current market price of `300 the stock trades at a P/E of 14.3x and
11.6x for FY12E and FY13E respectively. We maintain our BUY recommendation with a
price target of `356/share (accounting for rise in LNG prices).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Indraprastha Gas Limited
Investment Rationale
Demand still robust in NCT of Delhi and NCR for CNG: Compressed Natural
Gas (CNG) volumes (~90% of total volumes) grew at a CAGR of 15% between FY07-10
led by private car conversions due to favourable pricing of CNG. Considering the beneficial
pricing scenario (CNG being 67% cheaper than petrol and 36% than diesel) as well
as robust CNG demand in the operational areas, we expect CNG volumes to grow at
18% Y-o-Y from FY10 to FY13. With a view to cater to the increasing demand, IGL plans
to add 40 CNG stations in FY11 (241 stations in FY10) and 30 CNG stations in FY12
and FY13 each.
PNG segment set to become the next growth driver: The Piped Natural Gas
(PNG) segment which includes the relatively under penetrated domestic households and
industrial/commercial customers is expected to be the key catalyst for growth going forward.
On the back of strong volume growth from the relatively high margin industrial
segment, we expect PNG volumes to grow from 87 MMSCM in FY10 to 398 MMSCM in
FY13 (CAGR of 66%).
barrier for any new player in CGD business in Delhi is the non-availability of cheap
gas (APM gas or KG-D6) gas. The government has allotted 2 MMSCMD of gas to IGL
for its Delhi operations which is currently utilized fully. In the event of the government increasing
the allocation of APM or KG-D6 gas in Delhi, IGL would get first preference
over any new player with its already established network in Delhi.
Ability to pass on high input costs: Historically, IGL has consistently been able to
pass on cost increases by way of price hikes of CNG which has helped in sustenance of
margins. With blended cost of gas expected to be Rs 13.16 per SCM in FY13 as compared
to Rs 5.96 per SCM in FY10, gradual price increases (recently hiked prices by Rs
1.25 per SCM with effect from Jan 1, 2011) would be a key to sustain its margins. With
petrol and diesel prices expected to increase going forward, we believe IGL should not
find it difficult to pass on cost increases by way of price hikes.
Outlook & Valuation: Driven by robust demand in the CNG segment and increasing
revenues from PNG segment led by industrial volumes, we expect IGL’s revenues to
grow at a CAGR of 45% over FY10-13E. The aggressive expansion plans for establishing
the CNG and PNG infrastructure in the operational areas of IGL will reap rich dividends
going forward. At current market price of `300 the stock trades at a P/E of 14.3x and
11.6x for FY12E and FY13E respectively. We maintain our BUY recommendation with a
price target of `356/share (accounting for rise in LNG prices).
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