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IGL 2QFY12 earnings of Rs772m (+16.5%y/y) were below our and
consensus expectations, impacted by lower-than-expected margins. The
rupee depreciation late in 2QFY12 and higher LNG in the supply mix led
to the margin disappointment. While IGL continues to demonstrate pricing
power, we are cautious on the stock on account of supply constraints and
potential impact of higher prices on demand growth.
2QFY12 volume growth steady. IGL volume growth of 23% was aided
by strong 14% growth in CNG volumes (on account of private car
conversions and strong growth in DTC demand as new buses get added)
and a 62% growth in PNG. PNG volume growth during the quarter was
impacted by customer shutdowns and management believes there is no
price impact on demand as of yet.
Pricing power remains a key positive. Rupee depreciation late in
2QFY12 and higher LNG in supply mix led to the margin
disappointment. IGL has taken price hikes in early October (a Rs2/kg
hike in CNG), which should help protect margins during the current
quarter.
Supply visibility is a concern. IGL is hopeful of tying in further term
LNG volumes from parent GAIL; but given current volume growth
trends, IGL would need to depend on spot LNG for near-term growth.
Tying up of LT supplies would remove a key overhang on the stock.
We stay cautious. IGL stock has corrected c.9% over the last month. We
continue to stay cautious on the stock on low supply visibility and
potential demand impact of high spot LNG prices on Industrial
conversions. Our DCF-based PT is Rs410 – a 10% correction in the
stock would turn us more constructive on IGL stock. Key risk to our
view is higher-than-expected volume growth.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IGL 2QFY12 earnings of Rs772m (+16.5%y/y) were below our and
consensus expectations, impacted by lower-than-expected margins. The
rupee depreciation late in 2QFY12 and higher LNG in the supply mix led
to the margin disappointment. While IGL continues to demonstrate pricing
power, we are cautious on the stock on account of supply constraints and
potential impact of higher prices on demand growth.
2QFY12 volume growth steady. IGL volume growth of 23% was aided
by strong 14% growth in CNG volumes (on account of private car
conversions and strong growth in DTC demand as new buses get added)
and a 62% growth in PNG. PNG volume growth during the quarter was
impacted by customer shutdowns and management believes there is no
price impact on demand as of yet.
Pricing power remains a key positive. Rupee depreciation late in
2QFY12 and higher LNG in supply mix led to the margin
disappointment. IGL has taken price hikes in early October (a Rs2/kg
hike in CNG), which should help protect margins during the current
quarter.
Supply visibility is a concern. IGL is hopeful of tying in further term
LNG volumes from parent GAIL; but given current volume growth
trends, IGL would need to depend on spot LNG for near-term growth.
Tying up of LT supplies would remove a key overhang on the stock.
We stay cautious. IGL stock has corrected c.9% over the last month. We
continue to stay cautious on the stock on low supply visibility and
potential demand impact of high spot LNG prices on Industrial
conversions. Our DCF-based PT is Rs410 – a 10% correction in the
stock would turn us more constructive on IGL stock. Key risk to our
view is higher-than-expected volume growth.
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