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IGL: Margins up amidst regulatory concerns

Nov 9, 2012

Indraprastha Gas Ltd (IGL) has announced its results for the second quarter of the financial year 2012-2013 (2QFY13). The company has reported a 43.1% year on year (YoY) growth in sales and 28.5% YoY growth in the bottomline. Here is our analysis of the results.

Performance summary
  • The topline registered an increase of 43.1% YoY during the quarter on the back of growth in sales volumes and better realizations. For the first half year (1HFY13), the company reported a 42.5% YoY growth in the revenues.
  • The operating profits were up by 30.8% YoY with margins at 24.2% (versus 26.4% in 2QFY12). For 1HFY13, the growth in the operating profits came at 22.4% YoY, with margins at 23.9% (27.8% in 1HFY12).
  • The net profits for the quarter were up by 28.5% YoY with margins at 11.6% (12.9% in 2QFY12). For 1HFY13, the growth in the net profits came at 17.1% YoY, with margins at 11.4% (13.8% in 1HFY12).

Financial Summary
(Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
Sales 5,975 8,552 43.1% 11,343 16,159 42.5%
Expenditure 4,395 6,486 47.6% 8,186 12,296 50.2%
Operating profit (EBDITA) 1,580 2,066 30.8% 3,157 3,863 22.4%
EBDITA margin (%) 26.4% 24.2%   27.8% 23.9%  
Other income 15 33 120.6% 35 64 86.3%
Interest (net) 118 140 19.4% 208 296 42.3%
Depreciation 344 477 38.5% 667 904 35.6%
Profit before tax 1,133 1,482 30.8% 2,317 2,728 17.7%
Pretax margin (%) 18.9% 17.3%   20.4% 16.8%  
Tax 360 489 35.8% 744 886 19.0%
Profit after tax/(loss) 772 992 28.5% 1,573 1,843 17.1%
Net profit margin 12.9% 11.6%   13.8% 11.4%  
No. of shares (m)         140  
Diluted earnings per share (Rs)*         23.9  
Price to earnings ratio (x)**         11.1  
* On a 12-month trailing basis

What has driven performance in 2QFY13?
  • The 43.1% YoY growth in the revenues was on account of increase in gas sales volumes and higher realizations. Overall, the gas sales volumes were up by 10% YoY, with daily sales averaging at 3.69 million standard cubic meters per day (mscmd). In the compressed natural gas (CNG) segment, the volumes were up 9% YoY while in piped natural gas (PNG) segment, the sales volumes were up 19% YoY.

  • The operating profits during the quarter registered 30.8% YoY growth with margins at 24.2%, down from 26.4% in 2QFY12, however up sequentially by 55 basis points. The growth on a YoY basis was mainly due to better margins on gas sales and higher gas sales volumes. Sequentially, the cost of gas (as a % of sales) came down to 63.9%, from 64.4% in 1QFY13. On a year on year basis, the gas costs increased from 59.9% of sales in 2QFY12 to 63.9% (of sales) in 2QFY13, because of an increase in prices and depreciation in rupee against the dollar (higher share of imported gas went up due to fall in the domestic supplies).

    Cost breakup
    (Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
    Consumption of raw materials 3,581 5,462 52.5% 6,585 10,361 57.3%
    as a % of sales 59.9% 63.9%   58.1% 64.1%  
    Staff costs 100 130 29.7% 199 251 25.7%
    as a % of sales 1.7% 1.5%   1.8% 1.6%  
    Other expenditure 715 894 25.2% 1,401 1,684 20.2%
    as a % of sales 12.0% 10.5%   12.4% 10.4%  
    Total expenditure 4,395 6,486 47.6% 8,186 12,296 50.2%
    as a % of sales 73.6% 75.8%   72.2% 76.1%  

  • The growth in the bottomline came at 28.5% YoY for the quarter. This was mainly on account of a good growth at the topline and operating level. The net profit margins for the company stood at 11.6% at the end of the quarter, down 130 basis points on a YoY basis.

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 suggest our investors to avoid the stock until there is more clarity on the case pending with Supreme Court.

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