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Indraprastha Gas : Regulatory uncertainties abound - Views on News from Equitymaster

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Indraprastha Gas : Regulatory uncertainties abound
Jun 4, 2014

Indraprastha Gas Ltd (IGL) has announced its results for the fourth quarter of the financial year 2013-2014 (4QFY14). The company has reported 9.7% year on year (YoY) growth in the revenues and 8.3% YoY growth in the net profits for the quarter. Here is our analysis of the results.

Performance summary
  • The topline registered an increase of 9.7% YoY during the quarter. For FY14, the revenues grew by 16.5% YoY.
  • The operating profits for the quarter grew by 3.6% YoY with margins at 19.9%, down from 21.0% in 4QFY13. For FY14, the operating profits were up by 3.2% YoY with margins at 19.9%, down from 22.5% YoY.
  • The net profits for the quarter grew by 8.3% YoY with margins at 9.3%, down marginally from 9.5% in 4QFY13. For FY14, the bottomline grew by 1.7%, with net profit margins at 9.2%, as compared to 10.5% in FY13.
  • The Board has recommended a dividend of Rs 5.5 per share, implies a dividend yield of 1.6% at current stock price.

Financial summary
(Rs m) 4QFY13 4QFY14 Change FY13 FY14 Change
Sales 8,824 9,681 9.7% 33,670 39,222 16.5%
Expenditure 6,970 7,759 11.3% 26,089 31,398 20.4%
Operating profit (EBDITA) 1,855 1,922 3.6% 7,581 7,824 3.2%
EBDITA margin (%) 21.0% 19.9%   22.5% 19.9%  
Other income 31 64 105.3% 129 210.8 63.4%
Interest (net) 125 96 -23.1% 561.9 441.3 -21.5%
Depreciation 489 558 14.1% 1866.6 2195.4 17.6%
Profit before tax 1,272 1,332 4.7% 5,282 5,398 2.2%
Pretax margin (%) 14.4% 13.8%   15.7% 13.8%  
Tax 437 427 -2.2% 1,741 1,795 3.1%
Profit after tax/(loss) 835 905 8.3% 3,541 3,603 1.7%
Net profit margin 9.5% 9.3%   10.5% 9.2%  
No. of shares (m)         140  
Diluted earnings per share (Rs)*         25.7  
Price to earnings ratio (x)*         13.0  

What has driven performance in 4QFY14?
  • The company reported a sales growth of 9.7% YoY. However, sequentially, the revenues declined by 7% QoQ. This is mainly because as per (City Gas Distribution ) CGD guideline, there is a 100% APM (administered price mechanism) gas allocation and the company is supposed to pass the benefit of low gas cost to consumers by cutting gas prices. The volumes for the quarter were almost flat on a QoQ basis. While CNG volumes declined by 1% QoQ, PNG volumes increased sequentially by 1%.

  • The operating profit for the quarter grew by 3.6% YoY, down 1.5% QoQ. While the company was allocated APM gas, the low domestic gas supply had to be compensated to some extent with the costlier LNG. The cost of gas (as a % of sales) came at 70%, as compared to 66.3% in 4QFY13 and 68.7% in quarter ending December 2013. However, this was offset by decline in 'other expenses' , than came down to 8.6% (as a % of sales), from 10.7% in 4QFY13 and 11.1% in quarter ending December 2013.

    Cost summary
    (Rs m) 4QFY13 4QFY14 Change FY13 FY14 Change
    Consumption of raw materials (natural gas) 5,850 6,780 15.9% 21,970 26,813 22.0%
    as a % of sales 66.3% 70.0%   65.3% 68.4%  
    Staff costs 178 145 -18.7% 567 596 5.0%
    as a % of sales 2.0% 1.5%   1.7% 1.5%  
    Other expenditure 941 834 -11.4% 3,551 3,990 12.3%
    as a % of sales 10.7% 8.6%   10.5% 10.2%  
    Total expenditure 6,970 7,759 11.3% 26,089 31,398 20.4%
    as a % of sales 79.0% 80.1%   77.5% 80.1%  

  • The net profits for the quarter grew 8.3% YoY. This was mainly on account of an increase in other income, decline in interest expenses and lower tax expense, offset to some extent by increase in depreciation charge.
What to expect?
While the demand is likely to remain strong both for CNG and PNG, the gas prices (both domestic and imported) and the company's ability to pass any increase in cost of gas will be the key concerns. There is still regulatory uncertainty regarding
Petroleum and Natural Gas Regulatory Board's (PNGRB) order

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