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Indraprastha Gas: Priming for growth
Aug 24, 2009

Indraprastha gas (IGL), the city gas distribution major in the National Capital Territory (NCT) of Delhi, has recently come out with its annual report for FY09. Following are the important business developments mentioned in the document: Growth in city gas infrastructure

  • Compressed natural gas (CNG): The total number of CNG stations run by IGL has increased from 163 in March 2008 to 181 in March 2009. The installed compression capacity has increased from 2.1 m Kg/day in March 2008 to 2.7 m Kg/day in March 2009. The estimated number of vehicles running on CNG in Delhi as on 31st March 2009 was more than 250,000.

  • Piped natural gas (PNG): During FY09, IGL provided PNG connections to 14 new areas in Delhi. The total number of domestic PNG connections provided by the company as on 31st March 2009, is over 138,000.

  • Grows beyond Delhi: IGL grew beyond Delhi for the first time in FY09. It set up 2 online CNG stations each in Noida and Greater Noida. It has also started PNG connections in these cities.

Key operational issues

  • Input cost of gas: As result of the strong growth witnessed in IGLís volumes off take, it had to draw gas over and above the allocated quantity to meet its requirements during part of the year. The company had to pay a higher price as 'overdrawal charges' for the higher quantity, which increased the input cost of gas. IGL has tied up for additional gas with BPCL and GAIL to avoid 'overdrawal charges' in the future.

  • Exclusivity period: IGL has been given marketing exclusivity in the NCT of Delhi for 3 years starting from 1st January 2009 by the Petroleum & Natural Gas Regulatory Board (PNGRB). Thereafter, the field will be opened up for competition in the geographical area. The company also has been given network exclusivity for 25 years by the PNGRB.

Capital expenditure plans

  • CNG: IGL plans to add 22 new CNG stations in the NCT of Delhi in FY10. It plans to invest Rs 1,983 m towards the project.

  • PNG: The company plans to provide new PNG connections to over 50,000 domestic households during FY10. It plans to invest Rs 1,325 m for the same.

  • Geographical expansion: IGL plans to expand aggressively in the National Capital Region towns of Noida, Greater Noida & Ghaziabad during FY10. It has allocated capital investment to the tune of Rs 2,032 m for the project.

What to expect?
At the current price of Rs 158, the stock is trading at a multiple of 9.3 times our FY11 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. The company enjoys a debt free status, strong margins and return ratios. We shall soon update our research report on the company.

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