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Indraprastha Gas : Profits rise marginally
Feb 10, 2014 | Updated on Feb 17, 2014

Indraprastha Gas Ltd (IGL) has announced its results for the third quarter of the financial year 2013-2014 (3QFY14). The company has reported 19.8% year on year (YoY) growth in the revenues and 3.6% YoY growth in the net profits for the quarter. Here is our analysis of the results.

Performance summary
  • The topline registered an increase of 19.8% YoY during the quarter. For nine months ending December 2013 (9MFY14), the revenues grew by 18.9% YoY.
  • The operating profits for the quarter grew by 4.3% YoY with margins at 18.7%, down from 21.5% in 3QFY13. For 9MFY14, the operating profits were up by 2.9% YoY with margins at 20.0%, down from 23.1% YoY.
  • The net profits for the quarter grew by 3.6% YoY with margins at 8.6% versus 9.9% in 3QFY13. For 9MFY14, the bottomline declined marginally by 0.3%, with net profit margins at 9.1%, as compared to 10.9% in 9MFY13.

Standalone performance summary
(Rs m) 3QFY13 3QFY14 Change 9MFY13 9MFY14 Change
Sales 8,694 10,414 19.8% 24,853 29,541 18.9%
Expenditure 6,823 8,462 24.0% 19,119 23,639 23.6%
Operating profit (EBDITA) 1,871 1,952 4.3% 5,734 5,902 2.9%
EBDITA margin (%) 21.5% 18.7%   23.1% 20.0%  
Other income 26 70 169.8% 90.5 146.7 62.1%
Interest (net) 141 119 -15.8% 436.8 345 -21.0%
Depreciation 474 558 17.7% 1378 1637.7 18.8%
Profit before tax 1,282 1,345 4.9% 4,010 4,066 1.4%
Pretax margin (%) 14.7% 12.9%   16.1% 13.8%  
Tax 418 450 7.6% 1,304 1,368 4.9%
Profit after tax/(loss) 863 895 3.6% 2,706 2,698 -0.3%
Net profit margin 9.9% 8.6%   10.9% 9.1%  
No. of shares (m)            
Diluted earnings per share (Rs)*         25  
Price to earnings ratio (x)**         11.4  
*On trailing 12 months basis

What has driven performance in 3QFY14?

  • The revenues for the quarter grew by 19.8% YoY. This was mainly on account of an increase in the sales realizations as volume growth stood at a mere 2% YoY. On a sequential basis, compressed natural gas (CNG) volumes declined by 2.9%, while piped natural gas volumes remained flat due to weak demand from industrial segment.

  • The operating profit margins for the quarter contracted to 18.7% from 21.5% on account of increase in gas prices due to higher share of costlier imported gas and other expenses. The gas prices (as a % of sales) increased to 68.7% during the quarter, from 66.2% in 3QFY13.

  • The net profits for the quarter increased by 3.6% YoY. The depreciation expense increased by 17.7% YoY for the quarter, slightly offset by increase in other income and fall in interest expense.

    Cost summary
    (Rs m) 3QFY13 3QFY14 Change 9MFY13 9MFY14 Change
    Consumption of raw materials 5,759 7,152 24.20% 16,120 20,032 24.30%
    as a % of sales 66.20% 68.70%   64.90% 67.80%  
    Staff costs 138 156 13.30% 388.9 450.8 15.90%
    as a % of sales 1.60% 1.50%   1.60% 1.50%  
    Other expenditure 926 1,154 24.60% 2,610 3,156 20.90%
    as a % of sales 10.70% 11.10%   10.50% 10.70%  
    Total expenditure 6,823 8,462 24.00% 19,119 23,639 23.60%
    as a % of sales 78.50% 81.30%   76.90% 80.00%  

What to expect?
The recent decision on higher gas allocation will benefit the company as cheap gas is likely to boost the demand. The company has already slashed prices and passed on the benefits to consumers. However, once domestic gas price gets doubled, the benefits are unlikely to sustain.

The company's case on gas pricing is still pending with Supreme Court and remains an overhang. At the current price of Rs 256, the stock is trading at a trailing 12 months price to earning ratio of 10.24. We suggest investors to avoid buying the stock at current price levels.

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