Indraprastha Gas - Fundamental Call - Consortium

Indraprastha Gas reported in-line Q3FY13 PAT of Rs 863mn (+25% YoY, -13% QoQ). Key result highlights are: (a) CNG sales at 193.5mn kg (+7.6% YoY), (b) PNG sales at 83.5mmscm (+17.4% YoY), and (c) EBITDA/scm at Rs 5.5 (Rs 6.1 in Q2) on higher gas cost. A sequentially weaker Q3 apart, IGL's pricing power looks intact with a hike of Rs 1.55/kg in CNG (Jan'13) and Rs 1.5/scm in PNG prices (Feb'13) to counter higher gas costs. We have a BUY recommendation with a TP of Rs 325.

CNG/PNG sales growth moderates but likely to improve: At 193.5mn kg, IGL's CNG sales grew at 7.6% YoY. The modest growth was due to reduced arbitrage to diesel prices and delay in introduction of cluster buses. PNG sales growth was also moderate on account of higher LNG prices compared to FO and other liquid industrial fuel. But with diesel prices now likely to increase by Rs 0.5/month and pricing for bulk users already linked to market rates, the use of CNG and PNG is likely to increase. In coming quarters, we expect CNG volume growth to rebound to 10-12% YoY, further supported by the Delhi government's plan to introduce 5,000 buses and 45,000 autorickshaws by FY16.

Regular price revision likely to keep margins intact: EBITDA/scm declined to Rs 5.5 in Q3, compared to Rs 6.1 in Q2 when the combined benefit of higher CNG price (increase of Rs 2.9/kg to Rs 38.35/kg in Jul'12) and lower LNG cost buoyed margins. Q4 again is likely to be better on account of upward revision in CNG price to Rs 39.9 (5 Jan 2013) and PNG to Rs 23.5 (10 Feb 2013) to pass on the higher gas cost. We however model for a conservative EBITDA/scm of Rs 4.7/scm.

BUY recommendation with TP Rs 325: We recommend a BUY we expect a revival in sales volume growth, and find the risk-reward of legal battle with PNGRB tilted in IGL's favour - matter subjudice in Supreme Court; next hearing on 4th April.

Source : Equity Bulls

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