INDRAPRASTHA GAS- Steady performance: Edelweiss

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􀂄 Strong volume growth, higher blended realisation boost revenues
Indraprastha Gas (IGL) posted strong growth in revenues (62.9% Y-o-Y and
32.9% Q-o-Q), backed by record sales and higher realisation in both CNG and PNG
segments. Blended unit realisation was pegged at INR 18.1/scm (+19.7% Q-o-Q)
after accounting for the full impact of price hikes in CNG and PNG, as the
company managed to successfully pass on the impact of higher gas prices to
customers in Q2FY11. CNG sales volumes, at 155.6 mn kgs (up 19.3% Y-o-Y and
9.6% Q-o-Q), and PNG sales volumes, at 42 mn scm (up 88.3% Y-o-Y and 18.3%
Q-o-Q), were in line with expectations. CNG’s retail price rose 25%, to INR 27.5/kg
w.e.f. June 18, 2010, and was subsequently up to INR 27.75/kg w.e.f. September
30, 2010. Blended realisation of PNG was also up 14.4%
Q-o-Q, to INR 18.4/scm, after retail prices of PNG were hiked w.e.f. July 1, 2010.


􀂄 PAT at INR 663 mn, lower than estimates, on higher raw material costs
Blended unit raw material costs were higher than estimates, at INR 10.36/scm
(up 37.6% Q-o-Q post APM gas price hike), due to higher volumes of RLNG
sourced during the quarter. This was, however, partly offset by lower unit
operating costs. Consequently, unit EBITDA, was marginally up 3.7% Q-o-Q at
INR 5/scm. IGL also incurred interest expenses for the first time (INR 20 mn)
after raising loans in Q2FY11 for funding its capex plans. Its loan book at the end
of Q2FY11 stands at INR 2,098 mn with interest costs pegged at 8% of term
loans. Overall, while both CNG/PNG sales and blended realisation were in line
with expectations, higher-than-expected raw material costs and interest costs
resulted in PAT coming in lower than estimates at INR 663 mn (+16% Q-o-Q,
+16.7% Y-o-Y).

􀂄 Outlook and valuations: SOTP at INR 377/share; maintain ‘BUY’
Although Q2FY11 results were marginally below expectations due to higher raw
material costs and interest expenses, IGL has successfully passed on price hikes
to its customers in both CNG and PNG segments, and has been able to sustain
its EBITDA margins and high RoE. With robust outlook on CNG/PNG sales, we
are revising up our overall volume growth estimates to 24% in FY11E and 19%
in FY12E. However, we are broadly maintaining our earnings estimates for IGL to
account for increase in raw material and operating expenses. We are also rolling
forward the fair value of the stock to March 2012 and have revised it to INR 377
(from INR 326 earlier). We maintain ‘BUY/Sector Outperformer’ on the
stock. At CMP of 309, IGL is trading at P/E of 17.6x FY11E and 15.6x FY12E
earnings estimates.