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IGL- Future growth will be harder
Aug 16, 2007

Companies with complex operations and multiple moving parts characterize the energy sector. That makes it difficult to analyze and value them. Indraprastha Gas Limited (IGL) is somewhat of an exception. It operates in the last mile of the hydrocarbon value chain and sticks to two closely related segments. The company supplies CNG (Compressed Natural Gas) for transportation and PNG for domestic and commercial use. After the directives of the Supreme Court in 1998, conversion of vehicles to CNG drove the company’s growth. There was an assured demand due to the judicial ruling; assured supply and distribution network due to GAIL; availability of land and approvals due to BPCL and the Delhi government. Thus IGL enjoyed a great competitive position in the CNG segment.

Growth in the CNG segment
  FY00 FY01 FY02 FY03 FY04 FY05 FY06
CNG Sale '000 KG/day 8 48 267 566 772 816 873
growth rate 500% 456% 112% 36% 6% 7%
CNG stations 30 68 94 107 120 134 146
growth rate   127% 38% 14% 12% 12% 9%
Compression capacity '000 KG per day 20 192 582 1199 1613 1688 1908
growth rate   860% 203% 106% 35% 5% 13%
CNG Buses 18 400 4231 8874 10199 10480 10941
growth rate   2122% 958% 110% 15% 3% 4%
CNG Auto 0 14000 35678 49810 59027 62048 65335
growth rate     155% 40% 19% 5% 5%
CNG RTV 0 250 2165 4934 5267 5469 5634
growth rate     766% 128% 7% 4% 3%
Others 5182 11700 15166 15505 16098 16249 24573
growth rate   126% 30% 2% 4% 1% 51%
Total 5200 26350 57240 79123 90591 94246 106483
growth rate   407% 117% 38% 14% 4% 13%

But the CNG segment of the company is now stabilizing and it no longer enjoys extraordinary growth rates of the earlier years. The big bang conversion of the city bus fleet (sub segment now growing at 4%) and pre-1990 autos (sub segment now growing at 3%) from non-clean fuels to CNG has now given way to incremental conversions from other vehicles. In addition, CNG users are a much larger base now, hence the company will more likely witness a lower growth path in CNG going forward.

The growth story has shifted to the PNG segment. The increasing popularity of PNG is because it is cheaper that LPG on the basis of calorific value, reliable (supply is uninterrupted) and convenient (no need to order gas cylinders).

Growth in the PNG segment
  FY01 FY02 FY03 FY04 FY05 FY06
Domestic 2821 4111 7719 15245 25103 46727
growth rate   46% 88% 97% 65% 86%
Small commercial 15 37 72 100 140 215
growth rate   147% 95% 39% 40% 54%
Large commercial 5 5 11 18 34 47
growth rate   0% 120% 64% 89% 38%
Total 2841 4153 7802 15363 25277 46989
growth rate   46% 88% 97% 65% 86%

In FY06, the growth story of the company clearly rested on PNG. However, it is unlikely to be a repeat performance of the CNG boom. The PNG segment doesn’t have the tailwind of the Supreme Court ruling backing it. Moreover, retail private players such as RIL are keenly eyeing city gas distribution in Delhi drawn by its high margins. The willingness of RIL to slug it out for city gas distribution will also render ineffective IGL’s first mover advantage in gas allocation, pipeline network and land acquisition. There remains the question of “marketing exclusivity” that IGL enjoys. Even if marketing- exclusivity was extended in Delhi; IGL will face stiff competition expanding to other geographies. In fact, in other geographies, GAIL- one of IGL’s parent companies is a keen player itself along with biggies like Indian Oil and RIL. Clearly, PNG will not be as easy as CNG.

Growth of the company is physical terms
  FY00 FY01 FY02 FY03 FY04 FY05 FY06
CNG sale (MMSCM) 4 22 122 266 367 387 417
growth rate   485% 455% 118% 38% 5% 8%
PNG sale (MMSCM) 3 5 6 7 11 16 26
growth rate   54% 20% 17% 57% 45% 63%
Total 7 27 128 273 378 403 443
growth rate   285% 374% 113% 38% 7% 10%

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