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Indraprastha Gas: Demand remains strong - Views on News from Equitymaster
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Indraprastha Gas: Demand remains strong
Jan 27, 2010

Performance summary
  • Topline grows by 30% YoY during 3QFY10 on the back of higher volumes sold. Higher realisations in the CNG segment also help.
  • EBITDA margin increases to 37% during 3QFY10, up from 31% in 3QFY09 due to lower raw material cost (as a percentage of sales).
  • Other income declines by 37% YoY.
  • Bottomline registers a growth of 54% YoY during 3QFY10. It is higher than topline growth due to the absence of overdrawl charges in 3QFY10.


Financial snapshot
(Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Net sales 2,204 2,863 29.9% 6,287 7,941 26.3%
Expenditure 1,517 1,812 19.5% 3,970 5,020 26.5%
Operating profit (EBDITA) 687 1,051 53.0% 2,317 2,921 26.1%
EBDITA margin (%) 31.2% 36.7%   36.9% 36.8%  
Other income 57 36 -37.0% 165 129 -21.8%
Depreciation 166 197 18.4% 498 576 15.7%
Profit before tax 578 890 54.0% 1,983 2,473 24.7%
Tax 195 301 54.2% 662 833 25.9%
Profit after tax/(loss) 383 589 53.9% 1,322 1,640 24.1%
Net profit margin (%) 17.4% 20.6%   21.0% 20.7%  
No. of shares (m)         140  
Diluted earnings per share (Rs) *         15  
Price to earnings ratio (x) *         13.7  
* On a trailing 12 months basis

What has driven performance in 3QFY10?
  • IGLís CNG (compressed natural gas) volumes grew by 15% YoY during 3QFY10, while PNG (piped natural gas) volumes increased by 17% YoY during the quarter. Overall, the company registered a 19% YoY growth in volumes during the quarter.

    Volumes
    Particulars 3QFY09 3QFY10 Change
    CNG (m kgs) 118 136 15.2%
    PNG (m scm) 14 16 17.3%
    Overall (m scm) 169 201 19.0%
    m scm Ė million standard cubic meter

  • Product wise, CNG recorded sales of Rs 2.8 bn, registering a growth of 28% during 3QFY10 and PNG recorded sales of Rs 313 m registering a growth of 20% during the quarter. The company also sold natural gas in the cities of Gurgaon and Faridabad.

  • IGLís margins improved during 3QFY10 primarily on the back of raw material costs, which declined by 7.3% (as a percentage of sales). However, other expenditure increased by 1.8% as a percentage of sales during the quarter.

What to expect?
At the current price of Rs 200, the stock is trading at a multiple of 13 times our FY12 estimated earnings. We are positive on the city gas distribution story over the long-term and believe that IGL has a strong momentum going for it in the national capital region, given its early mover advantage and a strong track record. However, it is facing some problems in the input price of natural gas.

The company has well-entrenched operations, strong margins, return ratios and is debt free. However, current valuations no longer allow the excellent margin of safety an investor could obtain in the recent past.

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