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Indraprastha Gas: Gas costs take some sheen away! - Views on News from Equitymaster

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Indraprastha Gas: Gas costs take some sheen away!
Jun 1, 2011

IGL has announced the fourth quarter results for financial year 2010-2011 (4QFY11).For the quarter, the company has reported a 76% YoY growth in topline and 34% YoY growth in the bottomline respectively. Here is our analysis of the results.

Performance summary
  • The topline registered an increase of 76% YoY during the quarter. For FY11, the topline was up 61.5% YoY.
  • The operating profits increased by 45% during the quarter with margins at 27%, down by 6% (YoY). For FY11, the operating profits were up 29% YoY with margins at 29%, down 7% (YoY).
  • The net profits for the quarter registered an increase of 34% YoY , with margins at 14%, down 4% (YoY). For FY11, the bottomline was up 21% YoY, with margins at 15%, down 5% (YoY).
  • The company board has recommended a dividend of Rs 5 per share for FY11, which at a current stock price of Rs 343 implies a dividend yield of 1.5%


Financial snapshot
(Rs m) 4QFY10 4QFY11 Change FY10 FY11 Change
Net Sales 2,898 5,108 76.3% 10,838 17,505 61.5%
Expenditure 1,954 3,736 91.3% 6,973 12,518 79.5%
Operating profit (EBDIT) 944 1,372 45.3% 3,865 4,987 29.0%
Operating profit margin (%) 32.6% 26.9%   35.7% 28.5%  
Other income 25 8 -68.5% 154 31 -79.9%
Interest expense/(income)   70     132  
Depreciation 198 297 50.0% 775 1029 32.8%
Profit before tax 771 1,012 31.3% 3,244 3,857 18.9%
Profit before tax margin (%) 26.6% 19.8%   29.9% 22.0%  
Tax 256 320 25.1% 1089 1259 15.6%
Net profit 515 692 34.3% 2,155 2,598 20.5%
Net profit margin (%) 17.8% 13.5%   19.9% 14.8%  
No. of shares         140  
Diluted Earnings per share (Rs)*         18.6  
P/E ratio (x)*         18.5  
*on a trailing 12 months basis

What has driven performance in 4QFY11?
  • The topline soared 76% YoY during quarter on account of 28% YoY increase in volumes and higher realizations.

  • The operating profits registered 45% YoY growth on back of a strong growth in the topline. However, the margins took a beating of 6% (YoY) on account of higher gas costs , thus increasing raw material costs from 48% to 59% (as a % of sales). The other cost components like staff costs and ‘other expenditure’ declined by 1.6% (as a % of sales) and 4.2% (as a % of sales).

  • The net profit for the quarter was up 34.3% as a result of growth in the topline. However, the net profit margins declined to 14% versus 18% last year on account of higher gas costs.
    Cost break up
    (Rs m) 4QFY10 4QFY11 Change FY10 FY11 Change
    Consumption of raw materials 1,382 3,024 118.8% 4,949 9,835 98.8%
    as a % of sales 47.7% 59.2%   45.7% 56.2%  
    Staff costs 96 90 -7.0% 308 379 23.2%
    as a % of sales 3.3% 1.8%   2.8% 2.2%  
    Other expenditure 475 623 31.1% 2304 1717 -25.5%
    as a % of sales 16.4% 12.2%   21.3% 9.8%  
    Total expenditure 1,954 3,736 91.3% 7,560 11,931 57.8%
    as a % of sales 67.4% 73.1%   69.8% 68.2%  

What to expect?
The company has reported strong results for the quarter. For the full year, the net sales were in line with our estimates while bottomline beat our projections by 7%. Going forward, operating margins may face pressure due to declining gas supplies and rising gas costs. The management has suggested a volume growth at around 25% -30% for FY12 and coming years. At a current stock price of Rs 343, the stock is trading at 18.5 times FY11 earnings and 12.3 times estimated FY13 earnings. With respect to our target price for FY11, it implies a CAGR of 11%. While we have a positive outlook for the company’s performance, we would suggest a HOLD considering the 7% increase in stock prices since our last recommendation.

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