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IGL : Profits up 21% - Views on News from Equitymaster
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IGL : Profits up 21%
Feb 27, 2015

Indraprastha Gas Ltd (IGL) has announced its results for the third quarter of the financial year 2014-2015 (2QFY15). The company has reported 9.1% year on year (YoY) decline in the revenues while net profit for the quarter grew by 20.6% YoY. Here is our analysis of the results.

Performance summary
  • The revenues for the quarter declined by 9.1% YoY
  • The operating profit for the quarter declined by 1.6% YoY, with operating profit margins at 20.3% , up 155 basis points.
  • The net profits for the quarter grew by 21% YoY with net profit margins at 11.5%, up from 8.6% in the corresponding quarter last year.

Financial performance snapshot
(Rs m) 3QFY14 3QFY15 Change 9MFY14 9MFY15 Change
Sales 10,393 9,444 -9.1% 29,478 27,642 -6.2%
Expenditure 8,441 7,524 -10.9% 23,576 21,470 -8.9%
Operating profit (EBDITA) 1,952 1,920 -1.6% 5,902 6,172 4.6%
EBDITA margin (%) 18.8% 20.3%   20.0% 22.3%  
Other income 70 114 62.1% 147 277 88.9%
Interest (net) 119 63 -46.8% 345 258.5 -25.1%
Depreciation 558 376 -32.7% 1,638 1,114 -32.0%
Profit before tax 1,345 1,595 18.6% 4,066 5,077 24.9%
Pretax margin (%) 12.9% 16.9%   13.8% 18.4%  
Tax 450 513 14.0% 1,368 1,659 21.2%
Effective tax rate (%) 33.5% 32.2%   33.6% 32.7%  
Profit after tax/(loss) 895 1,082 20.9% 2,698 3,418 26.7%
Net profit margin 8.6% 11.5%   9.2% 12.4%  
No. of shares (m)         140  
Diluted earnings per share (Rs)*         30.9  
Price to earnings ratio (x)*         14.2  
* On a trailing 12 months basis

What has driven performance in 3QFY15?
  • The revenues for the quarter declined by 9.1% YoY mainly on account of lower realizations. While CNG segment witnessed higher volumes on an annual basis, the PNG gas sales volumes declined.

  • The operating profit for the quarter declined by 1.6% YoY and by 11.5% on a sequential basis. While the domestic gas price hike became effective from November, the price hike was not passed on leading to lower margins sequentially.

    Cost summary
    (Rs m) 3QFY14 3QFY15 Change 9MFY14 9MFY15 Change
    Consumption of raw materials (natural gas) 7,152 6,255 -12.5% 20,032 17,770 -11.3%
    as a % of sales 68.8% 66.2%   68.0% 64.3%  
    Staff costs 156 163 4.5% 450.8 494.1 9.6%
    as a % of sales 1.5% 1.7%   1.5% 1.8%  
    Other expenditure 1,133 1,106 -2.4% 3093 3,206 3.6%
    as a % of sales 10.9% 11.7%   10.5% 11.6%  
    Total expenditure 8,441 7,524 -10.9% 23,576 21,470 -8.9%
    as a % of sales 81.2% 79.7%   80.0% 77.7%  

  • The net profits for the quarter grew 21% YoY. This was mainly due to revision in depreciation rates. The depreciation expenses for the quarter declined by 32.7% YoY. The growth in the bottomline was also supported by increase of 62% YoY in the other income and lower interest costs.
What to expect?

While the domestic gas price hike has come into effect, prices of the competing fuels like fuel oil and diesel have come down, thus narrowing the gap and leading to a scenario where a hike in prices could be challenging, especially with the new Government in Delhi.

Further, there is a regulatory uncertainty regarding Petroleum and Natural Gas Regulatory Board's (PNGRB) order. Apart from that, the Delhi Development Authority (DDA) has raised a demand of Rs 1.6 bn (retrospectively from FY08) due to increase in license fees for sites taken by the company on lease or for setting up CNG stations. The company has filed a writ petition in High Court against this demand and the matter is subjudice.

The stock is currently trading at a P/E ratio of 14.2 and seems to be pricing in a favorable decision from Supreme Court regarding the PNGRB order. At current prices, we recommend investors not to buy the stock.

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