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IGL: Volumes drive performance
Nov 13, 2010

Indraprastha gas has announced its 2QFY11 results. The company has reported a 63% YoY and 17% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline grows by 63.2% YoY during 2QFY11.
  • EBITDA margin decreases to 27.9% during 2QFY11, down from 36.8% in 2QFY10 due to higher raw material cost (as a percentage of sales), which offset the savings in other expenditure.
  • Other income declines by 87% YoY.
  • Bottomline registers a growth of 16.7% YoY during the quarter.

Stanalone financial performance snapshot
(Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
Sales 2,738  4,468 63.2% 5,078 7,826 54.1%
Expenditure  1,731  3,221 86.0% 3,208 5,504 71.6%
Operating profit (EBDIT) 1,007  1,247 23.8% 1,870 2,322 24.2%
Operating profit margin (%) 36.8% 27.9% -24.1% 36.8% 29.7%  
Other income    43    5 -87.4%    93    16 -82.5%
Interest expense/(income) -   20   -      20  
Depreciation  194   239 23.4% 379 470 23.8%
Exceptional items -     -       -     -    
Profit before tax 856   994 16.0%  1,583  1,848 16.7%
Tax 288   331 14.7% 533  614 15.3%
Net profit 568   663 16.7%  1,051  1,234 17.5%
Net profit margin (%) 20.7% 14.8%   20.7% 15.8%  
No. of shares 140.0 140.0   140.0 140.0  
Diluted Earnings per share (Rs)*         16.70  
P/E ratio (x)*            18.6  
* On a trailing 12 months basis; adjusted for exceptional items

What has driven performance in 2QFY11?
  • Indraprastha gas reported a 63% YoY growth in topline during 2QFY11 on the back of a 27% YoY growth in overall volumes. CNG volumes grew by 19% YoY, while PNG volumes grew by 88% YoY during the quarter.

    Volumes
      2QFY10 2QFY11 Change
    CNG (m kgs) 131 156 19.0%
    PNG (m scm)   13   24 88.0%
    Overall (m scm) 194 246 27.0%

  • IGL's margins declined during 2QFY11 primarily on the back of raw material costs, which increased by 11.6% (as a percentage of sales). This offset the savings in staff costs as well as other expenditure.

  • The company plans to invest Rs 30 bn on a massive expansion programme in national capital territory of Delhi as well as in the adjoining Noida, Greater Noida and Ghaziabad areas over the next five years.

What to expect?
At the current price of Rs 310, 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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