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IGL: Bright performance - Views on News from Equitymaster
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IGL: Bright performance
Feb 6, 2008

Performance summary
  • Topline increases by 14% YoY during 3QFY08.

  • EBITDA margin expands to 43% during 3QFY08, up from 41% in 3QFY07. Decline in raw material costs (as percentage of sales) helps matters.

  • Other income grows by 142% YoY.

  • Bottomline registers a growth of 27% YoY during 3QFY08 owing to operating margin expansion and higher other income.

Financial snapshot
(Rs m) 3QFY07 3QFY08 Change 9mFY07 9mFY08 Change
Net sales 1,599 1,827 14.3% 4,498 5,186 15.3%
Expenditure 945 1,047 10.8% 2,658 2,968 11.7%
Operating profit (EBDITA) 654 780 19.4% 1,840 2,218 20.5%
EBDITA margin (%) 40.9% 42.7% 40.9% 42.8%
Other income 24 58 141.7% 68 145 112.4%
Depreciation 150 161 7.4% 450 475 5.6%
Profit before tax 528 678 28.3% 1,459 1,888 29.4%
Tax 173 227 31.3% 480 625 30.2%
Profit after tax/(loss) 355 450 26.9% 979 1,263 29.0%
Net profit margin (%) 22.2% 24.6% 21.8% 24.4%
No. of shares (m) 140.0
Diluted earnings per share (Rs)* 11.88
Price to earnings ratio (x)* 12.5
(* On trailing twelve months earnings)

What has driven performance in 3QFY08?
  • Growth in volumes: Volumes drove IGLís topline growth in this quarter in the absence of any significant price hikes. Given the spiraling crude prices, the cost advantage of CNG vis-ŗ-vis petroleum fuels is sustainable in the years to come and is likely to drive further conversions. In fact, the company is looking at conversion of 2,500 private vehicles per month. On the PNG front, the company has set a target at 70,000 domestic PNG customers for this fiscal in 16 new locations. This is twice the previous yearís target.

    Cost break-up
    (Rs m) 3QFY07 3QFY08 Change 9mFY07 9mFY08 Change
    Raw materials 721 780 8.3% 1,981 2,219 12.0%
    % sales 45.1% 42.7%   44.0% 42.8%  
    Staff cost 36 40 9.4% 104 110 6.5%
    % sales 2.3% 2.2%   2.3% 2.1%  
    Other expenditure 188 227 20.6% 573 639 11.5%
    % sales 11.8% 12.4%   12.7% 12.3%  
    Total cost 945 1,047 10.8% 2,658 2,968 11.7%
    % sales 59.1% 57.3%   59.1% 57.2%  

  • Costs decline on scale economies: Although raw material costs went up by 8% over the last quarter on a YoY basis, it fell from 45.1% to 42.7%, as a percentage of sales, thereby having a positive impact on operating margins. Staff costs also declined marginally as a percentage of sales. Clearly costs have not been an issue with IGL this quarter with total operating costs declining as a percentage of sales.

  • Other income contributes as usual: The investment of surplus cash available with the company led to a growth of 142% YoY in the other income for 3QFY08. This is line with the previous quarters, which have witnessed a steady climb in the figure.

What to expect?
Expansion of the user base (from conversion of private cars) in the CNG segment is expected to propel IGLís volumes going forward. In order to maintain the fuel parity, the management has not hiked the prices of CNG. The management is expected to maintain the parity between the prices of petrol and CNG in order to further encourage private car conversions. Despite this, margins are still expected to be around 40% over the next few years. Furthermore, the benefits of scale on the back of higher CNG volumes in the future are also expected to accrue to it. Expansion to nearby regions has had hiccups due to regulatory and bureaucratic reasons. However, with expansion likely to start contributing to revenues in FY09, volumes are likely to receive a further boost. PNG network has been extended to 60 locations in the capital with 85,000 family connections and the target for this fiscal is 70,000 more connections in 16 new locations.

At Rs 149, the stock is trading at a multiple of 13 times its trailing twelve months earnings. We maintain our positive view on the company.

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