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Indraprastha Gas Ltd (IGL) is the sole operator in the city gas
distribution (CGD) segment in the NCT of Delhi and the NCR regions of
Noida & Ghaziabad. It supplies compressed natural gas (CNG) via its
outlets and piped natural gas (PNG) to domestic &
commercial/industrial customers. IGL has witnessed a stupendous 2.2x
jump in sales volumes during FY06-11 due to a combination of latent
gas demand, access to cheap gas supplies and higher cost of competing
fuels. IGL has regularly demonstrated its pricing power through a
series of price hikes in both the CNG & PNG segments.
Price differential eroding, FY11-16E PNG CAGR to drop to 27%
With the hike in PNG price to `22/scm on Sept 1, domestic PNG trades
at parity to LPG whereas comm./ind. PNG is currently priced very close
to fuel oil / naphtha / LSHS. Domestic LPG prices have been revised
only twice in the previous 2 yrs. Downward revisions to global GDP
growth and crude demand estimates are expected to result in lower
crude, fuel oil & naphtha prices going forward. We expect 5 yr CAGR in
PNG volumes to fall from 47% during FY06-11 to 27% during FY11-16.
CNG to grow at CAGR of 12%, already factored in
Owing to a huge price differential of ~240% over gasoline, ~90% over
diesel and ~160% over auto LPG, CNG growth is expected to sustain at
12% y-o-y due to vehicle conversions and increasing availability of
factory-fitted CNG models.
FY11-16E PAT CAGR to drop to 13%, return ratios to peak in FY12E
We expect PAT growth to be substantially lower going forward with CAGR
falling from 20% during FY06-11 to 13% during FY11-16. We expect ROCE
& ROE to peak at 34% & 31% respectively in FY12, before falling to 26%
& 19% by FY16. We expect sales CAGR of 23% during FY11-16E, compared
to CAGR of 27% during FY06-11.
Valuation
We believe that the CMP continues to factor in high growth even in the
future. We value IGL by using DCF with WACC of 12% and terminal growth
rate of 3%. Our target price of `385 translates into FY13E P/E of 14x
and we have an “UNDERPERFORMER” rating on IGL.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Indraprastha Gas Ltd (IGL) is the sole operator in the city gas
distribution (CGD) segment in the NCT of Delhi and the NCR regions of
Noida & Ghaziabad. It supplies compressed natural gas (CNG) via its
outlets and piped natural gas (PNG) to domestic &
commercial/industrial customers. IGL has witnessed a stupendous 2.2x
jump in sales volumes during FY06-11 due to a combination of latent
gas demand, access to cheap gas supplies and higher cost of competing
fuels. IGL has regularly demonstrated its pricing power through a
series of price hikes in both the CNG & PNG segments.
Price differential eroding, FY11-16E PNG CAGR to drop to 27%
With the hike in PNG price to `22/scm on Sept 1, domestic PNG trades
at parity to LPG whereas comm./ind. PNG is currently priced very close
to fuel oil / naphtha / LSHS. Domestic LPG prices have been revised
only twice in the previous 2 yrs. Downward revisions to global GDP
growth and crude demand estimates are expected to result in lower
crude, fuel oil & naphtha prices going forward. We expect 5 yr CAGR in
PNG volumes to fall from 47% during FY06-11 to 27% during FY11-16.
CNG to grow at CAGR of 12%, already factored in
Owing to a huge price differential of ~240% over gasoline, ~90% over
diesel and ~160% over auto LPG, CNG growth is expected to sustain at
12% y-o-y due to vehicle conversions and increasing availability of
factory-fitted CNG models.
FY11-16E PAT CAGR to drop to 13%, return ratios to peak in FY12E
We expect PAT growth to be substantially lower going forward with CAGR
falling from 20% during FY06-11 to 13% during FY11-16. We expect ROCE
& ROE to peak at 34% & 31% respectively in FY12, before falling to 26%
& 19% by FY16. We expect sales CAGR of 23% during FY11-16E, compared
to CAGR of 27% during FY06-11.
Valuation
We believe that the CMP continues to factor in high growth even in the
future. We value IGL by using DCF with WACC of 12% and terminal growth
rate of 3%. Our target price of `385 translates into FY13E P/E of 14x
and we have an “UNDERPERFORMER” rating on IGL.
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