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Indraprastha Gas: Margins still compressed - Views on News from Equitymaster
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Indraprastha Gas: Margins still compressed
May 28, 2009

Performance summary
  • Topline grows by 19% YoY during 4QFY09, 20% YoY during FY09.
  • EBITDA margin declines to 32% during 4QFY09, down from 43% in 4QFY08.
  • Other income grows by 12% YoY.
  • Bottomline registers a decline of 16% YoY during 4QFY09 owing to contraction in operating margin. Profits decline by 1% YoY during the full year.


Financial snapshot
(Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
Net sales 1,915 2,285 19.3% 7,129 8,571 20.2%
Expenditure 1,091 1,557 42.7% 4,059 5,527 36.2%
Operating profit (EBDITA) 823 727 -11.7% 3,070 3,044 -0.8%
EBDITA margin (%) 43.0% 31.8%   43.1% 35.5%  
Other income 48 54 11.6% 165 219 32.7%
Depreciation 151 176 16.5% 626 674 7.8%
Profit before tax 721 605 -16.0% 2,609 2,589 -0.8%
Tax 239 202 -15.5% 864 864 -0.1%
Profit after tax/(loss) 482 403 -16.3% 1,745 1,725 -1.1%
Net profit margin (%) 25.2% 17.6%   24.5% 20.1%  
No. of shares (m)         140.0  
Diluted earnings per share (Rs)         12.3  
Price to earnings ratio (x)         10.6  

What has driven performance in 4QFY09?
  • IGLís CNG (compressed natural gas) volumes grew by 19% YoY during 4QFY09, while PNG (piped natural gas) volumes increased by 26% YoY during the quarter. Overall, the company registered a 20% YoY growth in volumes during the quarter which is reflected in the topline growth in value terms. The trend was similar for the full year FY09.

    Volumes
    Particulars 4QFY08 4QFY09 Change FY08 FY09 Change
    CNG (m kgs) 102 121 19.2% 386 460 19.2%
    PNG (m scm) 12 15 26.2% 43 54 26.6%
    Overall (m scm) 145 174 19.8% 549 657 19.8%

  • IGLís margins suffered during FY09 as it had to pay higher price for gas drawn over and above the allocated quantity to meet the requirement during part of the year. For 4QFY09, it witnessed a jump in raw materials cost by 43% in absolute terms and 8.3% (as a percentage of sales). Further, other expenditure grew by 2.2% (as percentage of sales) during the quarter.

  • IGL has received a demand of Rs. 43.7 m towards service charges on purchase of natural gas for the period 1st July 2008 to 31st March 2009. The company has not provided for the amount, as it believes that it is not payable as per the contractual terms.

What to expect?
At the current price of Rs 130, the stock is trading at a multiple of 8.4 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. However, it is facing some problems in the input price of natural gas.

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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