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UBS Investment Research
Indraprastha Gas
Secular growth story [EXTRACT]
„ IGL management continues to expect strong sales growth
IGL expects compressed natural gas (CNG) growth of 14-15%, domestic piped
natural gas (PNG) growth of around 30% and industrial/commercial gas sales
volume growth of 80-100% over the next few years (we forecast a 21% CAGR in
FY10-13). We think IGL is likely to retain its market dominance. The company
intends to pursue the benchmarking of tariffs with the Petroleum and Natural Gas
Regulatory Board (PNGRB). IGL could implement price hikes to pass on its high
gas costs (from the sourcing of regasified LNG [RLNG]).
„ Joining of APM allocation for Ghaziabad is a positive
Management expects the joining of the state-administered (APM) gas allocation for
Ghaziabad with the rest of the National Capital Region (NCR) supply to be a
positive. This could ease the need for price hikes slightly, given the lower cost of
gas. Management indicated that APM gas allocation will be retained by IGL and
that it has a five- to six-year contract with GAIL (almost perpetual and will be
renewed). A resolution of the Faridabad/Gurgaon dispute could take some time.
However, the recent verdict in the PNGRB case was a positive for IGL.
„ Good earnings growth and balance sheet
We forecast an EPS CAGR of 17.8% in FY11-13. IGL has a healthy balance sheet;
we estimate peak leverage at 0.42x in FY12 and high ROE (28.5% in FY12). We
believe the economics for gas is strong. We assume long-term returns will
gradually normalise.
„ Valuation: Rs400.00 price target
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Indraprastha Gas
Secular growth story [EXTRACT]
„ IGL management continues to expect strong sales growth
IGL expects compressed natural gas (CNG) growth of 14-15%, domestic piped
natural gas (PNG) growth of around 30% and industrial/commercial gas sales
volume growth of 80-100% over the next few years (we forecast a 21% CAGR in
FY10-13). We think IGL is likely to retain its market dominance. The company
intends to pursue the benchmarking of tariffs with the Petroleum and Natural Gas
Regulatory Board (PNGRB). IGL could implement price hikes to pass on its high
gas costs (from the sourcing of regasified LNG [RLNG]).
„ Joining of APM allocation for Ghaziabad is a positive
Management expects the joining of the state-administered (APM) gas allocation for
Ghaziabad with the rest of the National Capital Region (NCR) supply to be a
positive. This could ease the need for price hikes slightly, given the lower cost of
gas. Management indicated that APM gas allocation will be retained by IGL and
that it has a five- to six-year contract with GAIL (almost perpetual and will be
renewed). A resolution of the Faridabad/Gurgaon dispute could take some time.
However, the recent verdict in the PNGRB case was a positive for IGL.
„ Good earnings growth and balance sheet
We forecast an EPS CAGR of 17.8% in FY11-13. IGL has a healthy balance sheet;
we estimate peak leverage at 0.42x in FY12 and high ROE (28.5% in FY12). We
believe the economics for gas is strong. We assume long-term returns will
gradually normalise.
„ Valuation: Rs400.00 price target
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool.
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