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INDRAPRASTHA GAS (IGL)
PRICE: RS.398 RECOMMENDATION: BUY
TARGET PRICE: RS.450 FY13E P/E: 14.4X
q In Q2FY12, IGL's net revenue has increased by 11.3% QoQ and by 34.1 %
YoY to Rs. 5969 Mn mainly on account of higher volume growth and
marginal increase in realization. However, its bottom line was lower by
3.6% QoQ but up by 16.5% YoY to Rs. 772 Mn mainly due to 1). Significant
increase in raw material cost, 2). Higher interest cost, 3) Impact of
rupee depreciation and 4). Higher depreciation charge.
q Gross margin in absolute terms has increased by ~1.2% QoQ and 25.4%
YoY to Rs.2388 Mn.
q Both the segment i.e. CNG and PNG has shown decent volume growth.
During Q2FY12, IGL sold 177 mn kg of CNG thereby registering a growth
of 14 % YoY and 10 % sequentially. IGL sold 68 Mn SCM of PNG in
Q2FY12 showing strong 62.4% YoY and marginal 5.2% sequential
growth.
q Blended gross realization is higher by 9.8% YoY and 3.1% QoQ to Rs.
19.6/Scm (net of excise). On QoQ basis, the over all realization improved
mainly due to 1.7% growth in CNG realization and 4% in PNG realization.
q In Q2FY12, raw material cost was higher. However, management said for
Q3FY12E it has already made arrangement for gas supply and accordingly
it has increased CNG prices in this month. Further, we expected RLNG
price to come down post Jan-Feb'12 due to seasonality factor.
q In order to secure gas supply, IGL is negotiating with GAIL (promoter) to
enter into a long-term contract. We believe IGL has strong parental support
which will help in securing RLNG at most competitive rates.
q With the recent fuel price hike by OMCs, the cost-competitiveness of CNG
as against petrol/diesel has further improved. We expect more and more
vehicles will shift to CNG.
q IGL's revenues are expected to grow with the increase in realization and
huge demand of natural gas both in CNG and PNG segment.
q As mandated by Delhi government, LCVs will be converted into CNG
which will boost the CNG sales.
q In FY12E, IGL will be investing ~Rs.6 Bn in Delhi and NCR to expand its
network and Rs.5 Bn in FY13E.
q Also, IGL has planned to open additional five company owned CNG stations
in Nodia which will be operational by Dec'11. Presently, Noida has
only one exclusive CNG station in Sector 53 and two CNG filling units at
petrol pumps in sector 62 and 63. This will boost the gas sales volume
going forward.
q Management has further guided that additional 50 stations will be operational
by March'12 once approval is granted.
q The management has guided that in addition to catering to the demand
of households, the thrust would be on tapping industrial and commercial
customers who have huge demand potential. Also, private vehicles
will continue to be a growth driver for CNG sales in the coming years.
q We expect FY12E EPS of Rs. 21.9 and FY13E Rs. 27.7. The management
believes that the strong trends in CNG and PNG segment will continue
and IGL is best placed to benefit from rising gas consumption in India.
q Key risk remains in terms of gas-supply and further rise in gas prices for
both domestic and LNG. However, we expect IGL to pass on increasing
input cost in a phased manner to its customers.
q Based on our estimates, the stock at current market price of Rs.398 is
trading at 7.8 x EV/EBIDTA and 14.4x P/E on FY13E earnings.
q We have assumed WACC of 12.0%.
q Based on our DCF valuation model, the 12-month target price of IGL is
Rs. 450 and we recommend BUY on IGL. Also, looking at the growth
potential in the City gas distribution, rich experience, huge demand of
natural gas and strong promoter background of IGL, we are bullish on
the growth prospects of IGL.
Result Analysis
n Net revenue for Q2FY12 was at Rs.5.97 Bn up by 34.1% YoY and up by 11.3%
on sequential basis. Higher sales were a result of both increases in volume and
price revision undertaken by IGL. In balance sheet, debtors have increased as the
sales volume to industrial customers has increased. Simultaneously, deposits from
customers has also increased hence to that extent it is compensated.
n During Q2FY12, IGL sold 177mn kg of CNG thereby registering a growth of
14.0% YoY and 10% sequentially. IGL sold 68.2 mn SCM of PNG in Q2FY12
showing strong 62.4% YoY and 5.2% sequential growth.
n Segment wise revenue analysis: IGL has registered revenue of Rs.5.2 Bn in CNG
business, 23.7% YoY and 11.8% sequential growth. However, PNG segment has
registered revenue of Rs.1.4 Bn resulting in a 79.4% YoY and 9.4% QoQ growth.
n Blended gross realization is higher by 9.8% YoY and 3.1% QoQ to Rs.19.6/Scm
(net of excise). On QoQ basis, the realization improved mainly due to 4% realization
growth in PNG segment. In Sep'11, IGL has hiked the price of PNG in
Delhi, Noida, Greater Noida and Ghaziabad. The PNG rates in Delhi have increased
by Rs.3.05/SCM and Rs.8/SCM to Rs.22/SCM for consumption up to 30
SCM per two months and to Rs.34/SCM for consumption above 30 units in two
months resulting in over 16% and 30% hike respectively. Similarly, the price in
Noida, Greater Noida and Ghaziabad also increased to Rs.23.5/SCM for consumption
up to 30 SCM in two months and Rs.34/ SCM beyond consumption of
30 SCM in two months. The prices are higher in Uttar Pradesh due to differential
tax structure. As the price hike took in the last month of Q2FY12 the full benefit
is not be reflected in this quarter.
n In Q2FY12, the EBIDTA margin stood at 26.4%, which is down by 3.0% on QoQ
basis and down by 1.3% on YoY basis. Margins have fallen mainly due to higher
raw material cost.
n The raw material cost has increased by 19.2% QoQ and up by 40.7% on YoY
basis to Rs. 3.58 Bn. Also, raw material cost as a % of sales has increased by
4% QoQ and 2.8% YoY to 60% of net sales. This is partly due to rupee depreciation
and use of costlier RLNG.
n In absolute terms, EBIDTA was at Rs.1.57 Bn up by 27.9% YoY basis. Another
important factor to monitor is EBIDTA per unit of sales. The same has decreased
by 7.4% QoQ but increased by 4.7% YoY to Rs.5.17/SCM.
n CNG segment has witnessed higher growth in volumes as compare to PNG segment.
Also, CNG segment has higher realization as compare to PNG segment.
n The raw material cost as a percentage of revenue is up by 280 bps YoY basis
and up by 400 bps 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. Higher proportion of RLNG and rupee depreciation has led to
significant increase in raw material cost. We would like to highlight here that the
gas supplied by RIL and ONGC is fixed by government in US dollar terms. Hence
any rupee depreciation increases the raw material cost for IGL.
n The staff cost and other operating expenditure (as a percentage of sales) has
fallen both on QoQ and YoY basis.
n Other income of the company has decreased by 11.1% on QoQ basis to Rs.21
Mn as against 7.3% YoY basis due to use of funds for expansion purpose.
n The depreciation cost has gone up by 44.2% on YoY basis and 6.9% QoQ basis
to Rs.344 Mn as the company has expanded the number of stations in & around
Delhi and capitalized pipelines. Net block has increased by 46.8% to Rs.17.3 Bn.
n In Q2FY12, the Company paid an interest of Rs.118 Mn which is 482.6% YoY
and 30.4% QoQ basis. The debt in the books has increased by 149% to Rs.5.2
Bn as on 30th Sep'11. Hence, higher debt and higher interest rate has resulted in
higher interest outgo.
n PBT for Q2FY12 was at Rs.1.1 Bn up 14% YoY and down 4.4% on a sequential
basis.
n Bottom line for Q2FY12 was at Rs.772 Mn up 16.5% YoY but down by 3.6% on
sequential basis thereby translating into Q2FY12 EPS of Rs.5.5 and CEPS of
Rs.8.0.
n In Q2FY12, the PAT margin stood at
RECENT DEVELOPMENTS
Strong pricing power
A). PNG price hike
In Sep'11, IGL has hiked the price of PNG in Delhi, Noida, Greater Noida and
Ghaziabad. The PNG rates in Delhi have increased by Rs.3.05/SCM and Rs.8/SCM
to Rs.22/SCM for consumption up to 30 SCM per two months and to Rs.34/SCM for
consumption above 30 units in two months resulting in over 16% and 30% hike
respectively. Similarly, the price in Noida, Greater Noida and Ghaziabad also increased
to Rs.23.5/SCM for consumption up to 30 SCM in two months and Rs.34/
SCM beyond consumption of 30 SCM in two months. The prices are higher in Uttar
Pradesh due to differential tax structure.
As the price hike took in the last month of Q2FY12 the full benefit is not be reflected
in this quarter.
B). CNG price hike
From 1st Oct'11, IGL has increased CNG prices by Rs.2/kg to Rs.32/kg. However, the
same will be reflected in Q3FY12. Management said the hike was mainly on account
of rupee depreciation, import of costlier RLNG and rise in operational expenses
due to increased power tariffs
Similarly, in Noida, Greater Noida and Ghaziabad, CNG will price increased by Rs
2.30 per kg to Rs 35.90/kg. The hike in price is more than Delhi due to different tax
rates.
Earnings estimates
We expect IGL to book CNG gas volume of ~701 Mn Kgs and PNG 271 MSCMPA
of natural gas in FY12E. We expect IGL to report EPS of Rs.21.9 and CEPS of Rs.31.9
in FY12E and EPS of Rs.27.7 and cash EPS of Rs.38.8 in FY13E. We have assumed
a capex of Rs.6 Bn in FY12E and Rs.5 Bn in FY13E. Out of this around 50% will be
invested in CNG and balance in PNG.
Valuation & Recommendation
Based on our DCF valuation model, the 12-month target price of IGL is Rs. 450 and
we recommend BUY on IGL. Also, looking at the growth potential in the City gas
distribution, rich experience, huge demand of natural gas and strong promoter background
of IGL, we are bullish on the growth prospects of IGL.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
INDRAPRASTHA GAS (IGL)
PRICE: RS.398 RECOMMENDATION: BUY
TARGET PRICE: RS.450 FY13E P/E: 14.4X
q In Q2FY12, IGL's net revenue has increased by 11.3% QoQ and by 34.1 %
YoY to Rs. 5969 Mn mainly on account of higher volume growth and
marginal increase in realization. However, its bottom line was lower by
3.6% QoQ but up by 16.5% YoY to Rs. 772 Mn mainly due to 1). Significant
increase in raw material cost, 2). Higher interest cost, 3) Impact of
rupee depreciation and 4). Higher depreciation charge.
q Gross margin in absolute terms has increased by ~1.2% QoQ and 25.4%
YoY to Rs.2388 Mn.
q Both the segment i.e. CNG and PNG has shown decent volume growth.
During Q2FY12, IGL sold 177 mn kg of CNG thereby registering a growth
of 14 % YoY and 10 % sequentially. IGL sold 68 Mn SCM of PNG in
Q2FY12 showing strong 62.4% YoY and marginal 5.2% sequential
growth.
q Blended gross realization is higher by 9.8% YoY and 3.1% QoQ to Rs.
19.6/Scm (net of excise). On QoQ basis, the over all realization improved
mainly due to 1.7% growth in CNG realization and 4% in PNG realization.
q In Q2FY12, raw material cost was higher. However, management said for
Q3FY12E it has already made arrangement for gas supply and accordingly
it has increased CNG prices in this month. Further, we expected RLNG
price to come down post Jan-Feb'12 due to seasonality factor.
q In order to secure gas supply, IGL is negotiating with GAIL (promoter) to
enter into a long-term contract. We believe IGL has strong parental support
which will help in securing RLNG at most competitive rates.
q With the recent fuel price hike by OMCs, the cost-competitiveness of CNG
as against petrol/diesel has further improved. We expect more and more
vehicles will shift to CNG.
q IGL's revenues are expected to grow with the increase in realization and
huge demand of natural gas both in CNG and PNG segment.
q As mandated by Delhi government, LCVs will be converted into CNG
which will boost the CNG sales.
q In FY12E, IGL will be investing ~Rs.6 Bn in Delhi and NCR to expand its
network and Rs.5 Bn in FY13E.
q Also, IGL has planned to open additional five company owned CNG stations
in Nodia which will be operational by Dec'11. Presently, Noida has
only one exclusive CNG station in Sector 53 and two CNG filling units at
petrol pumps in sector 62 and 63. This will boost the gas sales volume
going forward.
q Management has further guided that additional 50 stations will be operational
by March'12 once approval is granted.
q The management has guided that in addition to catering to the demand
of households, the thrust would be on tapping industrial and commercial
customers who have huge demand potential. Also, private vehicles
will continue to be a growth driver for CNG sales in the coming years.
q We expect FY12E EPS of Rs. 21.9 and FY13E Rs. 27.7. The management
believes that the strong trends in CNG and PNG segment will continue
and IGL is best placed to benefit from rising gas consumption in India.
q Key risk remains in terms of gas-supply and further rise in gas prices for
both domestic and LNG. However, we expect IGL to pass on increasing
input cost in a phased manner to its customers.
q Based on our estimates, the stock at current market price of Rs.398 is
trading at 7.8 x EV/EBIDTA and 14.4x P/E on FY13E earnings.
q We have assumed WACC of 12.0%.
q Based on our DCF valuation model, the 12-month target price of IGL is
Rs. 450 and we recommend BUY on IGL. Also, looking at the growth
potential in the City gas distribution, rich experience, huge demand of
natural gas and strong promoter background of IGL, we are bullish on
the growth prospects of IGL.
Result Analysis
n Net revenue for Q2FY12 was at Rs.5.97 Bn up by 34.1% YoY and up by 11.3%
on sequential basis. Higher sales were a result of both increases in volume and
price revision undertaken by IGL. In balance sheet, debtors have increased as the
sales volume to industrial customers has increased. Simultaneously, deposits from
customers has also increased hence to that extent it is compensated.
n During Q2FY12, IGL sold 177mn kg of CNG thereby registering a growth of
14.0% YoY and 10% sequentially. IGL sold 68.2 mn SCM of PNG in Q2FY12
showing strong 62.4% YoY and 5.2% sequential growth.
n Segment wise revenue analysis: IGL has registered revenue of Rs.5.2 Bn in CNG
business, 23.7% YoY and 11.8% sequential growth. However, PNG segment has
registered revenue of Rs.1.4 Bn resulting in a 79.4% YoY and 9.4% QoQ growth.
n Blended gross realization is higher by 9.8% YoY and 3.1% QoQ to Rs.19.6/Scm
(net of excise). On QoQ basis, the realization improved mainly due to 4% realization
growth in PNG segment. In Sep'11, IGL has hiked the price of PNG in
Delhi, Noida, Greater Noida and Ghaziabad. The PNG rates in Delhi have increased
by Rs.3.05/SCM and Rs.8/SCM to Rs.22/SCM for consumption up to 30
SCM per two months and to Rs.34/SCM for consumption above 30 units in two
months resulting in over 16% and 30% hike respectively. Similarly, the price in
Noida, Greater Noida and Ghaziabad also increased to Rs.23.5/SCM for consumption
up to 30 SCM in two months and Rs.34/ SCM beyond consumption of
30 SCM in two months. The prices are higher in Uttar Pradesh due to differential
tax structure. As the price hike took in the last month of Q2FY12 the full benefit
is not be reflected in this quarter.
n In Q2FY12, the EBIDTA margin stood at 26.4%, which is down by 3.0% on QoQ
basis and down by 1.3% on YoY basis. Margins have fallen mainly due to higher
raw material cost.
n The raw material cost has increased by 19.2% QoQ and up by 40.7% on YoY
basis to Rs. 3.58 Bn. Also, raw material cost as a % of sales has increased by
4% QoQ and 2.8% YoY to 60% of net sales. This is partly due to rupee depreciation
and use of costlier RLNG.
n In absolute terms, EBIDTA was at Rs.1.57 Bn up by 27.9% YoY basis. Another
important factor to monitor is EBIDTA per unit of sales. The same has decreased
by 7.4% QoQ but increased by 4.7% YoY to Rs.5.17/SCM.
n CNG segment has witnessed higher growth in volumes as compare to PNG segment.
Also, CNG segment has higher realization as compare to PNG segment.
n The raw material cost as a percentage of revenue is up by 280 bps YoY basis
and up by 400 bps 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. Higher proportion of RLNG and rupee depreciation has led to
significant increase in raw material cost. We would like to highlight here that the
gas supplied by RIL and ONGC is fixed by government in US dollar terms. Hence
any rupee depreciation increases the raw material cost for IGL.
n The staff cost and other operating expenditure (as a percentage of sales) has
fallen both on QoQ and YoY basis.
n Other income of the company has decreased by 11.1% on QoQ basis to Rs.21
Mn as against 7.3% YoY basis due to use of funds for expansion purpose.
n The depreciation cost has gone up by 44.2% on YoY basis and 6.9% QoQ basis
to Rs.344 Mn as the company has expanded the number of stations in & around
Delhi and capitalized pipelines. Net block has increased by 46.8% to Rs.17.3 Bn.
n In Q2FY12, the Company paid an interest of Rs.118 Mn which is 482.6% YoY
and 30.4% QoQ basis. The debt in the books has increased by 149% to Rs.5.2
Bn as on 30th Sep'11. Hence, higher debt and higher interest rate has resulted in
higher interest outgo.
n PBT for Q2FY12 was at Rs.1.1 Bn up 14% YoY and down 4.4% on a sequential
basis.
n Bottom line for Q2FY12 was at Rs.772 Mn up 16.5% YoY but down by 3.6% on
sequential basis thereby translating into Q2FY12 EPS of Rs.5.5 and CEPS of
Rs.8.0.
n In Q2FY12, the PAT margin stood at
RECENT DEVELOPMENTS
Strong pricing power
A). PNG price hike
In Sep'11, IGL has hiked the price of PNG in Delhi, Noida, Greater Noida and
Ghaziabad. The PNG rates in Delhi have increased by Rs.3.05/SCM and Rs.8/SCM
to Rs.22/SCM for consumption up to 30 SCM per two months and to Rs.34/SCM for
consumption above 30 units in two months resulting in over 16% and 30% hike
respectively. Similarly, the price in Noida, Greater Noida and Ghaziabad also increased
to Rs.23.5/SCM for consumption up to 30 SCM in two months and Rs.34/
SCM beyond consumption of 30 SCM in two months. The prices are higher in Uttar
Pradesh due to differential tax structure.
As the price hike took in the last month of Q2FY12 the full benefit is not be reflected
in this quarter.
B). CNG price hike
From 1st Oct'11, IGL has increased CNG prices by Rs.2/kg to Rs.32/kg. However, the
same will be reflected in Q3FY12. Management said the hike was mainly on account
of rupee depreciation, import of costlier RLNG and rise in operational expenses
due to increased power tariffs
Similarly, in Noida, Greater Noida and Ghaziabad, CNG will price increased by Rs
2.30 per kg to Rs 35.90/kg. The hike in price is more than Delhi due to different tax
rates.
Earnings estimates
We expect IGL to book CNG gas volume of ~701 Mn Kgs and PNG 271 MSCMPA
of natural gas in FY12E. We expect IGL to report EPS of Rs.21.9 and CEPS of Rs.31.9
in FY12E and EPS of Rs.27.7 and cash EPS of Rs.38.8 in FY13E. We have assumed
a capex of Rs.6 Bn in FY12E and Rs.5 Bn in FY13E. Out of this around 50% will be
invested in CNG and balance in PNG.
Valuation & Recommendation
Based on our DCF valuation model, the 12-month target price of IGL is Rs. 450 and
we recommend BUY on IGL. Also, looking at the growth potential in the City gas
distribution, rich experience, huge demand of natural gas and strong promoter background
of IGL, we are bullish on the growth prospects of IGL.
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