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Indraprastha Gas: Boosted by volumes
Aug 13, 2010

Indraprastha gas has announced its 1QFY11 results. The company has reported a 44% YoY and 18% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline grows by 44% YoY during 1QFY11 led by 26% YoY growth in overall volumes.
  • EBITDA margin decreases to 32% during 1QFY11, down from 36.9% in 1QFY10 due to higher raw material cost (as a percentage of sales).
  • Other income declines by 78% YoY.
  • Bottomline registers a growth of 18% YoY during 1QFY11.


Financial snapshot
(Rs m) 1QFY10 1QFY11 Change
Net sales 2,339 3,358 43.5%
Expenditure 1,477 2,283 54.6%
Operating profit (EBDITA) 863 1,075 24.6%
EBDITA margin (%) 36.9% 32.0%  
Other income 50 11 -78.2%
Depreciation 186 231 24.3%
Profit before tax 727 855 17.6%
Tax 244 283 16.1%
Profit after tax/(loss) 483 571 18.4%
Net profit margin (%) 20.6% 17.0%  
No. of shares (m)   140  
Diluted earnings per share (Rs)*   16  
Price to earnings ratio (x)*   19.0  
* On a trailing 12 months basis

What has driven performance in 1QFY11?
  • Indraprastha gas reported a 44% YoY growth in topline during 1QFY11 on the back of a 26% YoY growth in overall volumes. CNG volumes grew by 18% YoY, while PNG volumes grew by 103% YoY during the quarter.

    Volumes
    Particulars 1QFY10 1QFY11 Change
    CNG (m kgs) 121 142 17.8%
    PNG (m scm) 18 36 102.9%
    Overall (m scm) 175 222 26.3%

  • IGLís margins declined during 1QFY11 primarily on the back of raw material costs, which increased by 5.2% (as a percentage of sales). Staff cost increased by 0.1% as a percentage of sales during the quarter.

  • The company has increased CNG prices in the national capital region. This move comes on the back of the government's decision to hike the price of administered price mechanism (APM) gas produced by ONGC and OIL from US$ 1.8 per m British thermal units (mBtu) to US$ 4.2 per mBtu. That is in line with prices of Reliance Industries' KG basin gas. IGL's current supply mix is 2.2 m standard cubic meters per day (mmscmd) of APM gas, 0.3 mmscmd of KG basin gas, and 0.4 mmscmd of regassified LNG. Since a bulk of IGL's gas supplies is sourced from APM gas, it had to choose between passing the cost to the customer and absorbing it.

What to expect?
At the current price of Rs 304, the stock is trading at a multiple of 14 times our FY13 estimated earnings. We are positive on the city gas distribution story over the long-term and believe that IGL has a strong momentum going for it in the national capital region, given its early mover advantage and a strong track record. However, it is facing some problems in the input price of natural gas.

The company has well-entrenched operations, strong margins, return ratios and is debt free. However, current valuations no longer allow the excellent margin of safety an investor could obtain in the recent past.

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