Indraprastha Gas - Result Update - Kotak

Hanging sword: Delhi high court has adjourned IGL's case against PNGRB to May 22, 2012.

- IGL has posted better than expected result mainly on account of 1). Better realization in the CNG segment and 2) higher volume growth in PNG segment.

- The Delhi High court's hearing on IGL's petition challenging the order of Petroleum Natural Gas Regulatory Board (PNGRB) on the network tariff and compression charge has been further adjourned to 22 May'12.

- In Q4FY12, IGL's net revenue has increased by 8.9% QoQ and by 41.4% YoY to Rs. 7203 Mn mainly on account of higher volume growth and increase in realization. Its bottom line has increased by 16.8% QoQ and YoY to Rs. 807.57 Mn.

- In March'12, IGL has hiked the prices of CNG gas in Delhi by Rs 1.70/kg and by Rs 1.90/kg in Noida, citing rise in input cost as the factor. The current consumer price of CNG is Rs 35.45 a kg in Delhi and Rs 39.80 a kg in Noida, Greater Noida and Ghaziabad.

- Going forward, we believe it will be difficult for IGL to hike the retail fuel prices as PNGRB is planning to cap the same. The matter is pending in the court.

- Further, OMCs has not increased retail fuel prices (Diesel, LPG) in spite of higher crude oil price and weak rupee due to higher inflation and political reasons. Thus, it makes further difficult for IGL to hike retail fuel price.

- IGL's raw material cost has increased due to 1). Rupee depreciation and 2). Lower supply of cheap domestic gas from KG-D6, forced IGL to import higher qty. of costlier RLNG.

- IGL source gas from APM, KG-D6, long term R-LNG and spot R-LNG. The gas is priced in dollars terms and the dollar has appreciated vis-à-vis rupee in Q1 till date FY13. The impact of the same will be reflected in Q1FY13.

- The Company is trying to enter into long term LNG supply agreement in order to reduce its dependence on costlier spot cargoes. In this regard, IGL is in talks with its promoters GAIL & BPCL and others.

- IGL's revenues are expected to grow with the increase in realization and huge demand of natural gas both in CNG and PNG segment.

- As mandated by Delhi government, LCVs will be converted into CNG which will boost the CNG sales.

- In FY13E, IGL will be investing ~Rs.5 Bn in Delhi and NCR to expand its network.

- The management has guided that in addition to catering to the demand of households, the thrust would be on tapping industrial and commercial customers who have huge demand potential. Also, private vehicles will continue to be a growth driver for CNG sales in the coming years.

- We expect FY13E EPS of Rs. 19.0. The management believes that the strong trends in CNG and PNG segment will continue and IGL is best placed to benefit from rising gas consumption in India.

- Key risk remains in terms of 1). Gas supply, 2). Further rise in gas prices both domestic and LNG, 3). Cost and time run in project execution and 4). Any major regulation by PNGRB on marketing margin. However, we expect IGL to pass on increasing input cost in a phased manner to its customers.

- Based on our estimates, the stock at current market price of Rs.207 is trading at 6.1x EV/EBIDTA and 10.9x P/E on FY13E earnings.

- Based on our DCF valuation model, the fair value of IGL is Rs. 210 (earlier Rs. 223) and we maintain our reduce rating.

- We have assumed ROCE of 18% pre-tax for FY13E and beyond (as per PNGRB's earlier notification). Based on that, we have back calculated gross margins of IGL for FY13E which come to Rs.6.4/Scm as against Rs.8/scm for FY12E (fall of ~19%).

- Since the matter is under litigation, we may review our estimates after getting some more clarifications.

Source : Equity Bulls

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