Indraprastha Gas: Regulatory uncertainty prevails - Views on News from Equitymaster

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Indraprastha Gas: Regulatory uncertainty prevails

Jul 31, 2012

Indraprastha Gas Ltd. (IGL) has announced its results for the first quarter of the financial year 2012-2013 (1QFY13).The company has reported a 41.7% year on year (YoY) growth in sales and an 6.2% YoY growth in the bottomline. Here is our analysis of the results.

Performance summary
  • The topline registered an increase of 41.7% YoY during the quarter on the back of growth in sales volumes and better realizations.
  • The operating profits were up by 13.9% YoY (down 6.9% on a Quarter on Quarter/QoQ basis) with margins at 23.6% (versus 23.5% in 4QFY12), down from 29.4% in 1QFY12.
  • The net profits for the quarter were up by 6.2% YoY (down 0.9% QoQ) with margins at 11.2% (12.2% in 4QFY12) as compared to 14.9% in 4QFY12.

Financial Summary
(Rs m) 1QFY12 1QFY13 Change
Sales 5,369 7,607 41.7%
Expenditure 3,791 5,810 53.3%
Operating profit (EBDITA) 1,579 1,797 13.9%
EBDITA margin (%) 29.4% 23.6%  
Other income 18 31 72.1%
Interest (net) 90 155 72.2%
Depreciation 322 427 32.5%
Profit before tax 1,185 1,247 5.2%
Pretax margin (%) 22.1% 16.4%  
Tax 384 396 3.2%
Profit after tax/(loss) 801 850 6.2%
Net profit margin 14.9% 11.2%  
No. of shares (m)   140  
Diluted earnings per share (Rs)*   22.2  
Price to earnings ratio (x)**   10.5  
*On a trailing 12 months basis

What has driven performance in 1QFY13?
  • For the quarter, the company reported 41.7% YoY growth in sales on back of a 15% growth in sales volumes. Productwise, CNG (Compressed Natural Gas) witnessed volume sales growth of 13% YoY and PNG (Piped Natural Gas) volume sales growth came at 23% YoY. As per the company, the growth in volumes is due to all round conversion of vehicles to CNG and increased acceptability of PNG as a domestic fuel.

  • The operating profits during the quarter registered 13.9% YoY growth on account of an increase in the input gas prices. On account of higher share of costlier imported liquefied natural gas (LNG) and depreciating rupee, the gas costs for the company went up to 64.4% of net sales as compared to 56.0% of net sales in 1QFY12. However, this was slightly offset by decline in staff costs and 'Other expenses' (both as a % of sales). The operating margins, as a result, stood at 23.6% for the quarter, down from 29.4% in 1QFY12.

  • The growth in the bottomline came at 6.2% for the quarter. Apart from a weak operating environment, the growth was weak on account of a 72% YoY increase in finance costs and 32.5% YoY increase in the depreciation expenses. The net profit margins for the company stood at 11.2% at the end of the quarter, as compared to 14.9% in 1QFY12.

    Cost breakup
    (Rs m) 1QFY12 1QFY13 Change
    Consumption of raw materials 3,004 4,899 63.1%
    as a % of sales 56.0% 64.4%  
    Staff costs 99 121 21.7%
    as a % of sales 1.9% 1.6%  
    Other expenditure 687 790 15.0%
    as a % of sales 12.8% 10.4%  
    Total expenditure 3,791 5,810 53.3%
    as a % of sales 70.6% 76.4%  

What to expect?
IGL used to be in an enviable position in the downstream gas sector. However, in April, things took an adverse turn for IGL as the downstream gas market regulator Petroleum and Natural Gas Regulatory Board (PNGRB) ordered more than 60% cut in network tariffs and 59% cut in compression charges. While the company managed to dodge the regulator's order by getting Delhi High Delhi Court's judgment in its favor, the regulatory uncertainty still looms over the company's fortunes as PNGRB has moved to Supreme Court now and decision is still awaited. The stock price has seen a sharp decline post PNGRB's order to cut tariffs. We expect the stock prices to remain weak and suggest our investors to avoid the stock until there is more clarity on the case pending with Supreme Court.

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