Indraprastha Gas, a joint venture between GAIL and BPCL, formed to cater to the natural gas requirements in the National Capital Territory (NCT) of Delhi, has been a major gainer over the last one month. What's more, an intra-sector comparison shows that the companies actively present in the business of natural gas have outshone other oil companies, including the PSU behemoths like IOC, HPCL and BPCL (see table below).
Let us now focus on the various factors that have helped Indraprastha Gas during the current fiscal.
Single player in Delhi: Indraprastha Gas is the single player catering to the CNG and PNG requirements in Delhi. The company sources its gas requirements from GAIL and dispenses natural gas through its owned outlets as well as through BPCL and other PSU companies' retail outlets. The company caters to over 90,000 vehicles in Delhi and has the entire public transportation network under its gambit. Further, the growth plans as indicated by the Delhi government would help the company expand business.
Gas price scenario: Although private major, Gujarat Gas, catering to the regions in Gujarat, has witnessed a hike in gas purchase price, Indraprastha Gas continues to source its gas requirements through its co-promoter GAIL at the regulated prices and has complete freedom to change its retail selling price. Further, the company is in a position to pass on any price hikes on to the customers, as the fuel is relatively cheaper as compared to petrol and diesel.
New avenues: Recently, the company has evinced interest to expand its business into other surrounding territories such as Faridabad, Noida and Ghaziabad among others. This expansion drive is in line with the company's strategy to be present in the entire NCT. Also, the company is now aggressively promoting its piped natural gas business, which has immense potential, given the rising costs of LPG.
At Rs 95, the stock is trading at a price to cash flow multiple of 8.1 times FY05E earnings (P/E multiple of 12.7 times). Given the business potential and the state government's intent to reduce pollution, Indraprastha Gas is likely to be the major beneficiary in the long term. Further, the company has an established network, thereby giving it a first-mover advantage as against any new entrant, which shall find it difficult to establish business. This major factor creates a virtual monopoly for Indraprastha Gas.
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