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Indraprastha Gas: Regulation remains a major overhang - Views on News from Equitymaster
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  • May 15, 2012 - Indraprastha Gas: Regulation remains a major overhang

Indraprastha Gas: Regulation remains a major overhang
May 15, 2012

Indraprastha Gas Ltd.(IGL) has announced its results for the financial year 2011-2012 (FY12).The company has reported a 41.2% year on year (YoY) growth in sales and an 16.8% YoY growth in the bottomline. For FY12, the sales and bottomline registered a growth of 43.9% YoY and 18.3% YoY respectively. Here is our analysis of the results.

Performance summary
  • The topline registered an increase of 41.2% YoY during the quarter on the back of higher tariffs and growth in sales volumes. For full year, sales were up 43.9% YoY.
  • The operating profits were up by 23.5% YoY during the quarter with margins at 23.5%, down from 26.9% in the corresponding quarter last year. For the full year, operating profits were up by 27.6% YoY and margins came at 25.3% (versus 28.5% last year).
  • The net profits for the quarter were up by 16.8% YoY, with margins at 11.2% versus 13.5% last year. For FY12, the bottomline was up 18.3% YoY, with margins at 12.2%, versus 14.8% last year.

Financial Summary
(Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
Sales 5,108 7,212 41.2% 17,505 25,192 43.9%
Expenditure 3,736 5,517 47.7% 12,518 18,830 50.4%
Operating profit (EBDITA) 1,372 1,695 23.5% 4,987 6,362 27.6%
EBDITA margin (%) 26.9% 23.5%   28.5% 25.3%  
Other income 8 18 127.6% 31 61 98.2%
Interest (net) 70 136 93.4% 132 479 263.8%
Depreciation 297 397 33.7% 1,029 1,432 39.2%
Profit before tax 1,012 1,179 16.5% 3,857 4,512 17.0%
Pretax margin (%) 19.8% 16.3%   22.0% 17.9%  
Tax 320 372 15.9% 1,259 1,440 14.4%
Profit after tax/(loss) 692 808 16.8% 2,598 3,072 18.3%
Net profit margin 13.5% 11.2%   14.8% 12.2%  
No. of shares (m)         140  
Diluted earnings per share (Rs)*         21.9  
Price to earnings ratio (x)**         9.7  

What has driven performance in 4QFY12?
  • For the quarter, the company reported 41.2% YoY growth in sales. This was mainly on account of an increase in tariffs and higher gas sales volumes. Out of an 18% overall growth in sales volumes, CNG (Compressed Natural Gas) segment reported volume growth of 15% YoY, while growth for PNG segment (Piped Natural Gas) stood at 33% YoY. For full year, the revenues increased by 43.9% YoY on account of higher sales volumes and tariff hikes.

  • The operating profits for the quarter registered a growth of 23.5% on back of higher volumes and better price realizations. The operating profit margins for the quarter stood at 23.5%, 80 basis points (bps) above the margin in 3QFY12, reflecting a sequential improvement. During the quarter, the raw material cost went up to 63.5% (as a % of sales) versus 59.2% (as a % of sales) in 4QFY11 and 63.8% (as a % of sales) in 3QFY12. Overall, the operating expenses during the quarter stood at 76.5% of sales (versus 73.1% of sales in 4QFY11) as compared to 77.3% of sales in the previous quarter (3QFY12). For full year, the operating profits registered a growth of 27.6% YoY while operating margins stood at 25.3% (versus 28.5% last year). The growth in the profits was a result of hike in tariffs and increase in the gas sales volumes.

    Cost breakup
    (Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
    Consumption of raw materials 3,024 4,577 51.4% 9,835 15,392 56.5%
    as a % of sales 59.2% 63.5%   56.2% 61.1%  
    Staff costs 90 120 33.4% 379 426 12.3%
    as a % of sales 1.8% 1.7%   2.2% 1.7%  
    Other expenditure 623 821 31.8% 2,304 3,013 30.8%
    as a % of sales 12.2% 11.4%   13.2% 12.0%  
    Total expenditure 3,736 5,517 47.7% 12,518 18,830 50.4%
    as a % of sales 73.1% 76.5%   71.5% 74.7%  

  • The net profit for the quarter registered a growth of 16.8% YoY, on account of growth in operating profits. The net profit margins for the quarter came at 11.2% versus 13.5% in 4QFY11 and 10.4% in the previous quarter (3QFY12). The interest and depreciation costs were up 93.4% YoY and 33.7% YoY respectively during the quarter. For FY12, the bottomline was up 18.3% YoY with margins at 12.2% versus 14.8% last year.

What to expect?
On a sequential basis, the company has reported better numbers. It has not yet considered financial implications of Petroleum and Natural Gas Regulatory board (PNGRB) order to cut tariff on gas transportation. According to the order that led to more than 30% fall in the stock price in a single day, the company can charge Rs 38.58/mmBtu (Million Metric British Thermal Units) for transmission of gas against Rs 104.05/mmBtu that it charges. Also, CNG compression tariff was ordered to be Rs 2.75 a kg when IGL charges Rs 6.66. These rates are to be retrospectively applicable from April 1, 2008. The company has approached Delhi High court contesting the order and the matter is under litigation with a hearing scheduled on May 22.

At a current stock price of Rs 213, the stock is trading a price to earnings multiple of 9.7x. On account of the above mentioned regulatory concerns, we have a cautious outlook on the stock.

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