IGL - Q4FY12 Result update - Centrum

Operationally back on track; court verdict to set future course

After weak Q3 results IGL got back on track in Q4 with EBITDA/scm improving from Rs4.9/scm in Q3 to Rs5.4/scm in Q4. The improvement was attributed to two price hikes effected during the quarter - from Rs32.0/kg to Rs33.8/kg on January 1 and the other from Rs33.8/kg to Rs35.5/kg from March 5. Pressure was felt from natural gas sourcing cost due to higher LNG prices and rupee depreciation. The company thus reported PAT of Rs808mn against Rs692mn in Q3. IGL's network tariffs and compression charges were notified by the PNGRB regulator on April 9 which were significantly below the calculations submitted by the company. The company thus filed a writ petition against the order and the matter is currently subjudice. After two hearings in the interim period, the next hearing is scheduled on May 22. Devoid of clarity on the tariffs, we have kept IGL's rating under review.

- CNG price hike leads to revenue jump: Two CNG price hikes affected during Q4 led to 8.8% sequential jump in revenues to Rs7.2bn. CNG volumes remained flat QoQ while it jumped 14.3% YoY and PNG volumes jumped 9.7% QoQ and 32.0% YoY. PNG volume growth continued to remain robust due to commercial demand.

- EBITDA/scm claws back above Rs5/scm: Two CNG price hikes helped IGL to reinstate its EBITDA/scm back above Rs5/scm. The company thus reported EBITDA/scm of Rs5.4/scm during Q4 despite pressure from higher natural gas sourcing cost. Natural gas sourcing cost was up 5.7% QoQ and 28.0% YoY owing to higher LNG prices and rupee depreciation. Higher EBITDA/scm led to a jump in operating profit by 12.6% QoQ and 23.5% YoY to Rs1.7bn.

- Depreciation, interest cost in line: Additional capex on network expansion and new CNG stations led to depreciation increasing by 8.0% QoQ and 33.7% YoY. Interest cost remained flattish sequentially yet jumped 93.4% YoY due to higher debt for funding capex.

- Court verdict to set future course: IGL's operational performance was in line during Q4. However, the verdict of court over network tariffs and compression charges against PNGRB is likely to set the course for IGL's future earnings. If the revised tariffs are applied retrospectively, IGL's networth (about Rs10bn) could get completely eroded and if the tariffs are applicable prospectively then IGL's earnings are at a serious risk. Devoid of clarity on the tariffs, we keep IGL's rating under review (we have not taken revised tariffs in our estimates for FY13E and FY14E).

Source : Equity Bulls

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