IGL, Q2FY13 Result Update:: Centrum

Sequential volume growth, CNG price hike elevate
profitability
IGL reported once again a stupendous performance in Q2 backed by healthy
volume growth and strong realisations. The company reported the highest
ever quarterly profits at Rs992mn up 28.5% YoY and 16.7% QoQ. Average
CNG realisations jumped by 8.0% QoQ at Rs37.9/kg (current price at
Rs38.4/kg) due to Rs2.9/kg price hike on 7 July. The company will report good
performance in Q3 despite no price hikes due to the softening of spot LNG
prices and likely rupee appreciation. IGL-PNGRB court case is scheduled for
next hearing on 21 November. We believe this event should keep the stock
price at bay for the time being. We currently maintain ‘Neutral’ rating on the stock.
Volumes and realisations rise in Q2: IGL raised CNG price by Rs2.9/kg from 7
July to Rs38.4/kg thus taking the average CNG realisations to Rs37.9/kg in Q2,
up 8.0% sequentially. Also, CNG and PNG volumes jumped by 5.8% and 1.8%
QoQ respectively thus benefitting the performance. Realisations growth along
with volume growth led to 43.1% YoY and 12.4% QoQ jump in revenues at
Rs8.6bn.
EBITDA/scm expands to Rs6.2/scm: ~8% QoQ CNG price hike led to
substantial expansion in IGL’s EBITDA/scm at Rs6.2/scm, higher both on YoY
(Rs5.1/scm) and QoQ (Rs5.6/scm) basis. In contrast, higher spot LNG sourcing
for incremental volume growth along with rupee depreciation (~2% QoQ) led
to 6.4% QoQ jump in gas sourcing cost at Rs16.3/scm. Overall, EBITDA margins
rose by 60bps QoQ and operating profits jumped 14.9% at Rs2.1bn.

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Depreciation inches up, interest costs down: IGL has invested over Rs2bn
during H1 which led to higher depreciation. Depreciation for Q2 thus stood at
Rs477mn up 38.5% YoY and 11.8% QoQ. Interest cost declined by 9.6%
sequentially at Rs140mn due to repayment of some debt. Buoyed by higher
volumes and realisations, IGL reported highest ever quarterly profits at
Rs992mn.
Volume growth remains healthy, court case hearing on 21 November to
be watched out for: Despite quarterly CNG price hikes in last 3 quarters,
volume growth for IGL has been healthy. Incrementally, the company is likely
to benefit from likely rupee appreciation and lower spot LNG prices. We
remain confident over IGL’s volume growth despite intermittent price hikes
(which may not be significant hereon). However, near term performance
would be tracked by the IGL-PNGRB court case. Next hearing of case is
scheduled for 21 November. We wait and watch for the outcome of the case
which will decide the multiple to be assigned to IGL. We have revised our
estimates for FY13E and FY14E. Based on our new estimates, we still maintain
‘Neutral’ rating on the stock with a slightly revised price target of Rs243 (Rs240).