Challenging volume outlook in near term… • Indraprastha Gas (IGL) :: ICICI Securities, PDF link

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Challenging volume outlook in near term…
• Indraprastha Gas (IGL) declared its Q2FY15 results with revenues at
| 951.1 crore (our estimate: | 982.8 crore) and PAT at | 119.6 crore
(our estimate: | 127.2 crore)
• EBITDA at | 216.9 crore came below our estimate of | 231.6 crore.
The EBITDA margin came in at 22.8% (our estimate 23.6%)
• The topline was below our estimate due to lower than expected
volumes of 363 mmscm (our estimate: 369.2 mmscm). The
company’s gross margins of | 9.4/scm was lower than our estimate
of | 9.6/scm
Operational performance disappointing; acquisitions to drive growth
During the quarter, IGL’s CNG volumes stood at 3 mmscmd, up 5% YoY,
while PNG volumes stood at 0.93 mmscmd, down 3.9% YoY. The recent
government directive for priority allocation of domestically produced
natural gas is positive for the company. We expect volumes to pick up
from H2FY15 due to higher volumes from PNG segment (industrial
volumes) due to lower LNG prices. In the CNG segment, volume growth is
expected to remain below historical average for FY15 as the demand is
not picking up from the bus transport in Delhi. We have reduced the
volume estimates of FY15E from 1476.8 mmscm to 1436.5 mmscm, as we
believe the CNG conversion rate will be slower. We have estimated the
FY16E sales volumes at 1554.6 mmscm. We believe IGL’s investment (|
190 crore) in Maharashtra Natural Gas (MNGL) is positive, giving it access
to industrial gas demand in Pune, without much impact on its balance
sheet. At 0.3 mmscmd, MNGL offers high growth potential.
Maintains gross spread
The pricing power of the company has helped it to maintain the gross
spread. The company has been hiking CNG prices at regular intervals to
pass on the increasing raw material cost. However, the recent gas price
hike has not been passed to customers. We believe the company would
pass on increased costs from Q4FY15 when clarity on the Supreme Court
ruling emerges. Hence, we expect gross margins to remain stable. We
estimate gross margins at | 9.2/scm and | 9/scm for FY15E and FY16E,
respectively.
Verdict pending in Supreme Court
The Supreme Court decision on the case between Indraprastha Gas and
Petroleum & Natural Gas Regulatory Board (PNGRB) is pending. It holds
the key for IGL’s future as it will define the scope of PNGRB’s regulations.
We believe that the Delhi High Court verdict will be upheld in the
Supreme Court. We have made our assumptions, taking the Delhi HC
order in its original form. The Supreme Court verdict is expected in the
next few days as the hearing has been done and judgement has been
reserved by the Supreme Court. We have kept the stock under review
currently as the Supreme Court decision is expected soon and will revisit
the rating based on the Court’s judgement.

LINK
http://content.icicidirect.com/mailimages/IDirect_IndraprasthaGas_Q2FY15.pdf