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Indraprastha Gas Ltd: A lackluster quarter - Views on News from Equitymaster
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Indraprastha Gas Ltd: A lackluster quarter
Aug 12, 2013

Indraprastha Gas Ltd (IGL) has announced its results for the first quarter of the financial year 2013-2014 (1QFY14). The company has reported 18.7% year on year (YoY) growth in the revenues and 3.0% YoY growth in the net profits for the quarter. Here is our analysis of the results.

Performance summary
  • The topline registered an increase of 18.7% YoY during the quarter.
  • The operating profits for the quarter were up by 7.9% YoY with margins at 21.5% (versus 23.6% in 1QFY13).
  • The net profits for the quarter were up by 3.0% YoY with margins at 9.7% versus 11.2% in 1QFY13.
  • During the quarter, the company has acquired 50% of the paid up equity share capital of Central U.P Gas Ltd (CUGL) at a price of around Rs 23 per equity share , amounting to around Rs 690 m. CUGL is engaged in city gas distribution business in the cities of Kanpur and Bareilly in Uttar Pradesh.

(Rs m) 1QFY13 1QFY14 Change
Sales 7,607 9,027 18.7%
Expenditure 5,810 7,088 22.0%
Operating profit (EBDITA) 1,797 1,939 7.9%
EBDITA margin (%) 23.6% 21.5%  
Other income 31 38 21.3%
Interest (net) 155 128 -17.5%
Depreciation 427 532 24.5%
Profit before tax 1,247 1,318 5.7%
Pretax margin (%) 16.4% 14.6%  
Tax 396 442 11.6%
Profit after tax/(loss) 850 876 3.0%
Net profit margin 11.2% 9.7%  
No. of shares (m)   140  
Diluted earnings per share (Rs)*   25.5  
Price to earnings ratio (x)**   10.4  
*On trailing 12 months basis

What has driven performance in 1QFY14?

  • The net sales for the quarter grew by 18.7% YoY. The growth was supported by around 5% YoY growth in the gas sales volumes and better realizations. Of the total, the gas volumes in the CNG segment (compressed natural gas) grew by 4% YoY while gas volumes in the PNG (piped natural gas) segment grew by 7% YoY.

  • The operating profits for the quarter grew by 7.9% YoY on account of higher volumes and realisations. However, the operating profit margins for the quarter declined to 21.5% from 23.6% in 1QFY13. This was due to increase in cost of gas from 64.4% in 1QFY13 to 66.0% in 1QFY14 (both as a % of sales). Apart from that, an increase in the 'other expenditure' also contributed to the dip in the margins.

    Cost breakup
    (Rs m) 1QFY13 1QFY14 Change
    Raw material cost 4,899 5,955 21.6%
    as a % of sales 64.4% 66.0%  
    Staff costs 121 146.8 21.3%
    as a % of sales 1.6% 1.6%  
    Other expenditure 790 986 24.9%
    as a % of sales 10.4% 10.9%  
    Total expenditure 5,810 7,088 22.0%
    as a % of sales 76.4% 78.5%  

  • The net profits for the quarter were up just by 3% YoY. The net profit margins for the quarter stood at 9.7% as compared to 11.2%. The decline in the margins was mainly on account of high cost of natural gas, increase in the other expenses, higher depreciation expenses and higher effective tax rate.
What to expect?

IGL's performance was lackluster during the quarter. Going forward, the increase in the gas costs and depreciating rupee may impact margins for the company. Besides, the stock is suffering from a regulatory overhang. In April 2012, 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 favour, the regulatory uncertainty still looms over the company's fortunes as PNGRB has moved to Supreme Court now and decision is still awaited.

At the current stock price, the stock is trading at a trailing 12 months PE ratio of 10.5 times trailing 12 months earnings. We suggest investors to avoid buying the stock at current price level.

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