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Indraprastha Gas: Margins compressed - Views on News from Equitymaster

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Indraprastha Gas: Margins compressed
Feb 3, 2009

Performance summary
  • Topline grows by 20% YoY during 3QFY09, 21% YoY during 9mFY09.
  • EBITDA margin declines to 31% during 3QFY09, down from 43% in 3QFY08.
  • Other income grows by 37% YoY.
  • Bottomline registers a decline of 15% YoY during 3QFY09 owing to contraction in operating margin. Profits grow 5% YoY during the nine-month period.


Financial snapshot
(Rs m) 3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
Net sales 1,843 2,204 19.5% 5,215 6,287 20.6%
Expenditure 1,047 1,517 44.9% 2,968 3,970 33.7%
Operating profit (EBDITA) 797 687 -13.7% 2,246 2,317 3.1%
EBDITA margin (%) 43.2% 31.2% 43.1% 36.9%
Other income 42 57 36.6% 116 165 41.4%
Depreciation 161 166 3.4% 475 498 5.0%
Profit before tax 678 578 -14.7% 1,888 1,983 5.0%
Tax 227 195 -14.2% 625 662 5.8%
Profit after tax/(loss) 450 383 -14.9% 1,263 1,322 4.6%
Net profit margin (%) 24.4% 17.4% 24.2% 21.0%
No. of shares (m) 140.0
Diluted earnings per share (Rs)* 12.9
Price to earnings ratio (x)* 8.2
*On trailing twelve months earnings

What has driven performance in 3QFY09?
  • IGLís CNG (compressed natural gas) volumes grew by 18% YoY during 3QFY09, while PNG (piped natural gas) volumes increased by 31% YoY during the quarter. Overall, the company registered a 19% YoY growth in volumes during the quarter which is reflected in the topline growth in value terms.

    Volumes
    3QFY08 3QFY09 Change
    CNG (m kgs) 100 118 17.7%
    PNG (m scm) 107 140 30.8%
    Overall (m scm) 1,420 1,687 18.8%
    m scm Ė million standard cubic metre

  • IGL witnessed a jump in raw materials cost by 47% in absolute terms and 10% (as a percentage of sales) during 3QFY09, which affected its EBITDA margins. Further, staff cost and other expenditure grew by 2% (as percentage of sales).

  • During 3QFY09, IGL received a demand of Rs 22 m towards service charges on purchase of natural gas. The company has not provided for the amount, as it believes that it is not payable as per the contractual terms.

  • IGL has received a demand of Rs 175 m from its supplier of natural gas pertaining to excess drawl of natural gas for 2QFY09 and 3QFY09. The company is disputing the demand. Pending resolution of the dispute, it has provided for the same during the quarter.

What to expect?
At the current price of Rs 105, the stock is trading at a multiple of 6.8 times our FY11 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.

Considering the well-entrenched position of the company, its debt free status, strong margins, return ratios and reasonable valuations, we hold a favourable view of the stock.

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