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IGL: Sparkling performance - Views on News from Equitymaster

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IGL: Sparkling performance

Jun 19, 2008

Performance summary
  • Topline increases by 15% YoY during FY08.

  • EBITDA margin expands to 43% during FY08, up from 42% in FY07. Decline in raw material costs (as percentage of sales) helps matters.

  • Other income grows by 130% YoY.

  • Bottomline registers a growth of 27% YoY during FY08 owing to operating margin expansion and higher other income.

Standalone Financial snapshot
(Rs m) 4QFY07 4QFY08 Change FY07 FY08 Change
Net sales 1,643 1,874 14.1% 6,141 7,060 15.0%
Expenditure 932 1,091 17.1% 3,589 4,059 13.1%
Operating profit (EBDITA) 711 783 10.0% 2,552 3,000 17.6%
EBDITA margin (%) 43.3% 41.8% 41.6% 42.5%
Other income 34 89 165.4% 102 234 129.8%
Depreciation 149 151 1.7% 598 626 4.6%
Profit before tax 596 721 20.8% 2,056 2,609 26.9%
Tax 196 239 22.1% 676 864 27.9%
Profit after tax/(loss) 401 482 20.2% 1,380 1,745 26.5%
Net profit margin (%) 24.4% 25.7% 22.5% 24.7%
No. of shares (m) 140.0
Diluted earnings per share (Rs) 12.46
Price to earnings ratio (x) 10.0

What has driven performance in FY08?
  • Growth in CNG volumes: Volumes drove IGLís topline growth in FY08. Given the spiraling crude prices, the cost advantage of CNG vis-ŗ-vis petroleum fuels is sustainable in the years to come and is likely to drive further conversions. CNG vehicles serviced by the company grew by 19% in 9mFY08 (up from 133,436 at the end of FY07 to 158,906 on Jan 1, 2008). The company sold 453 million standard cubic meters (mmscm) of CNG in FY07, while 373 mmscm was sold in 9mFY08. The average sale of CNG per day grew by 10% in 9mFY08 (up from 942,000 Kgs in FY07 to 1,035,000 Kgs during 9mFY08). (Volume figures for FY08 reported for the first 3 quarters as 4th quarter information is not available).

  • Growth in PNG volumes: Domestic PNG users serviced by the company grew by 41% in 9mFY08 (up from 78,000 at the end of FY07 to 110,000 on Jan 1, 2008). 37 mmscm of PNG was sold in FY07, while 31 mmscm was sold in 9mFY08. The combined average daily sale of CNG and PNG grew by 10% during 9mFY08 (up from 1.34 mmscm in FY07 to 1.47 mmscm during 9mFY08).

    Cost break-up
    (Rs m) 4QFY07 4QFY08 Change FY07 FY08 Change
    Raw materials 696 810 16.4% 2,677 3,029 13.2%
    % sales 42.4% 43.2% 43.6% 42.9%
    Staff cost 38 42 12.5% 141 153 8.1%
    % sales 2.3% 2.3% 2.3% 2.2%
    Other expenditure 198 239 20.6% 771 878 13.8%
    % sales 12.0% 12.7% 12.6% 12.4%
    Total cost 932 1,091 17.1% 3,589 4,059 13.1%
    % sales 56.7% 58.2% 58.4% 57.5%

  • Costs decline on scale economies: Although raw material costs in FY08 went up by 13% over FY07 on a YoY basis, it fell from 43.6% to 42.9%, as a percentage of sales, thereby having a positive impact on operating margins. Staff costs also declined marginally as a percentage of sales. Clearly costs have not been an issue with IGL this fiscal with total operating costs declining as a percentage of sales.

  • Other income contributes as usual: The investment of surplus cash available with the company led to a growth of 130% YoY in the other income for FY08. This is line with the previous periods, which have witnessed a steady climb in the figure.

What to expect?
Expansion of the user base (from conversion of private cars) in the CNG segment is expected to propel IGLís volumes going forward. The management is expected to maintain the parity between the prices of petrol and CNG in order to further encourage private car conversions. Despite this, margins are still expected to be around 40% over the next few years. Furthermore, the benefits of scale on the back of higher CNG volumes in the future are also expected to accrue to it. The company has incurred a capex of Rs 7 bn in the first three quarters of FY08, which is higher than the capex for full year FY07 of Rs 6.4 bn. In our view, capital expenditure adds value to the company given the high returns on capital in the city gas distribution business.

At Rs 124, the stock is trading at a multiple of 10 times its FY08 earnings. We maintain our positive view on the company.

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