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Please refer to important disclosures at the end of this report
Company Update | Oil & GasCompany Update | Oil & GasCompany Update | Oil & GasCompany Update | Oil & GasCompany Update | Oil & Gas
June 22, 2010
Indraprastha GasIndraprastha GasIndraprastha GasIndraprastha GasIndraprastha Gas
Turning over a new leafThe hike in CNG prices have eliminated key headwinds for IGL viz. expected margin
contraction and reduction in earnings and return ratios, to a large extent. Relative
ease in pass through of the APM gas price hike indicates absence of regulatory
risks in the near term. This coupled with strong CNG conversions and growth in
newer geographies would result in strong earnings growth and re-rating of the
stock. We revise our target price on the stock to Rs301 (Rs210) owing to the upward
revision in earnings estimates and lower WACC estimates (to reflect lower risk).
WWWWWe upgrade the stock to Buy from Reduce earliere upgrade the stock to Buy from Reduce earliere upgrade the stock to Buy from Reduce earliere upgrade the stock to Buy from Reduce earliere upgrade the stock to Buy from Reduce earlier.....
Margin erosion risk subsides:Margin erosion risk subsides:Margin erosion risk subsides:Margin erosion risk subsides:Margin erosion risk subsides: We had concerns over sustainability of IGL'shigh margins, which we believed were fueled by lower gas costs (subsidised gas).
Also, post end of marketing exclusivity in CY2011 we believed a level playing field
would emerge and IGL would have to source gas at higher prices in turn squeezing
its marketing margins. However, with the hike in CNG prices, our assumption of
margin fall no longer holds good. It also points at the absence of regulatory risks in
the near term. Going ahead, given that KG-D6 and APM gas prices are freezed till
FY2014, IGL would not be required to make significant CNG price hikes. Thus, the
margin erosion risk has subsided substantially.
VVVVVolumes to propel profitability:olumes to propel profitability:olumes to propel profitability:olumes to propel profitability:olumes to propel profitability: We expect strong growth in CNG conversion in
IGL's area of operation driven by discretionary CNG demand due to better
economics. This coupled with strong growth expected in the domestic PNG segment
is likely to drive the company's volume growth going ahead. We expect CNG and
PNG volumes to register a CAGR of 14.4% and 36.2% over FY2010-12E respectively,
resulting in overall volumes CAGR of 16.9% during the mentioned period. Thus,
strong volume growth coupled with stable EBDITA/scm are likely to drive the
companys profitability (CAGR of 17.5% over FY2010-12E) going ahead.
Stock Info
Shareholding Pattern (%)
Sector Oil & Gas
Market Cap (Rs cr) 3,575
Beta 0.5
52 Week High / Low 266/126
Avg Daily Volume 178384
Face Value (Rs) 10
BSE Sensex 17,750
Nifty 5,317
Reuters Code IGAS.BO
Bloomberg Code IGL@IN
Promoters 45.0
MF / Banks / Indian FIs 32.4
FII / NRIs / OCBs 11.9
Indian Public / Others 10.7
Abs. (%) 3m 1yr 3yr
Sensex 1.9 23.9 22.7
IGL 14.0 95.6 110.8
Investment Period 12 months
BUYBUYBUYBUYBUYCMP Rs255
Target Price Rs301
Source: Company, Angel Research
Key Financials
Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E
TTTTTotal operating Incomeotal operating Incomeotal operating Incomeotal operating Incomeotal operating Income 853853853853853 1,0841,0841,0841,0841,084 1,6121,6121,6121,6121,612 1,9851,9851,9851,9851,985% chg 20.8 27.1 48.7 23.1
Net PNet PNet PNet PNet Profitrofitrofitrofitrofit 172172172172172 215215215215215 244244244244244 298298298298298
% chg (1.1) 24.9 13.4 21.9
OPM (%) 35.2 35.7 29.3 30.5
EPS (Rs)EPS (Rs)EPS (Rs)EPS (Rs)EPS (Rs) 12.312.312.312.312.3 15.415.415.415.415.4 17.517.517.517.517.5 21.321.321.321.321.3
P/E (x) 20.7 16.6 14.6 12.0
P/BV (x) 5.2 4.3 3.6 3.0
RoE (%) 27.4 28.6 27.0 27.6
RoCE (%) 34.8 38.1 33.8 31.6
EV/Sales (x) 3.9 3.2 2.2 1.9
EV/EBITDA (x) 11.1 8.9 7.7 6.3
Amit VAmit VAmit VAmit VAmit Voraoraoraoraora+91 22 4040 3800 Ext: 322
Deepak PDeepak PDeepak PDeepak PDeepak Pareekareekareekareekareek
+91 22 4040 3800 Ext: 340
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Indraprastha Gas | Company Update
Investment Arguments
Margin erosion risks subside substantially
Following increase in the APM gas prices, IGL has hiked the prices of compressednatural gas (CNG) by over 26%. The CNG rates in Delhi have increased by Rs5.6/kg
to Rs27.5/kg from Rs21.9/kg. Similarly, the prices in Noida, Greater Noida and
Ghaziabad stand increased at Rs30.6/kg. The hike has come as a positive surprise as
we had been building in 50% pass through of the APM as well as non-APM gas price
hike in our estimates. Earlier statements by the Petroleum Secretary and the government
had also indicated that IGL may not be able to fully pass through the price hike
needed to offset the impact on margins.
We had estimated the required increase in the CNG prices on account of the APM gas
price hike at around Rs3.4/kg (in FY2011E). Hence, the price hike of Rs5.6/kg more
than offsets the increase in the APM gas price ( refer Exhibit 1). According tomanagement, the increase could be further segregated into Rs5.0/kg on account of
increase in gas cost, and the balance to the increase in operating expenditure. It may
be noted here that IGL has changed over from the gas-based compressors to electric
compressors, which has resulted in reduction in the repairs and maintenance costs.
However, the same has increased the company's operating expenditure.
Exhibit 1: APM gas prices break-up
PPPPParticularsarticularsarticularsarticularsarticulars FY10FY10FY10FY10FY10 FY11EFY11EFY11EFY11EFY11E FY12EFY12EFY12EFY12EFY12E
Consumer Gas Price (TSCM) (10,000) Cal. 3,840 6,322 6,818
Consumer Gas Price(TSCM) (8,300) Cal. 3,187 5,247 5,659Royalty (@10%) (TSCM) 266 623 623
Purchase tax (TSCM) 117 274 274
Gas marketing margins (TSCM) 200 200 200
HBJ Transportation charges
(including service tax) (TSCM) 1,061 1,061 1,061
DESU Maruti Transportation charges
(including service tax)(TSCM) 614 633 652
Total Price (TSCM) 5,445 8,038 8,469
PPPPPrice per SCMrice per SCMrice per SCMrice per SCMrice per SCM 5.45.45.45.45.4 8.08.08.08.08.0 8.58.58.58.58.5
PPPPPrice per Kg (1 SCM = 1.31 kg)rice per Kg (1 SCM = 1.31 kg)rice per Kg (1 SCM = 1.31 kg)rice per Kg (1 SCM = 1.31 kg)rice per Kg (1 SCM = 1.31 kg) 7.17.17.17.17.1 10.510.510.510.510.5 11.111.111.111.111.1
Required Increase in CNG prices per KgRequired Increase in CNG prices per KgRequired Increase in CNG prices per KgRequired Increase in CNG prices per KgRequired Increase in CNG prices per Kg 3.403.403.403.403.40 0.560.560.560.560.56
Source: Company, Angel Research
We believe that the increase of Rs5.0/kg on account of increase in gas cost captures
the increase in the APM gas prices (Rs3.4/kg), higher costs incurred in procuring
KG-D6 gas and R-LNG and higher gas costs for the domestic PNG segment.
CNG rates in Delhi have increased byCNG rates in Delhi have increased byCNG rates in Delhi have increased byCNG rates in Delhi have increased byCNG rates in Delhi have increased byRs5.6/kg to Rs27.5/kg from Rs21.9/kgRs5.6/kg to Rs27.5/kg from Rs21.9/kgRs5.6/kg to Rs27.5/kg from Rs21.9/kgRs5.6/kg to Rs27.5/kg from Rs21.9/kgRs5.6/kg to Rs27.5/kg from Rs21.9/kg.....
The hike has come as a positive surpriseThe hike has come as a positive surpriseThe hike has come as a positive surpriseThe hike has come as a positive surpriseThe hike has come as a positive surprise
as we had been building in 50% passas we had been building in 50% passas we had been building in 50% passas we had been building in 50% passas we had been building in 50% pass
through of the APM as well as non-APMthrough of the APM as well as non-APMthrough of the APM as well as non-APMthrough of the APM as well as non-APMthrough of the APM as well as non-APM
gas price hike in our estimatesgas price hike in our estimatesgas price hike in our estimatesgas price hike in our estimatesgas price hike in our estimates
According to management, the increaseAccording to management, the increaseAccording to management, the increaseAccording to management, the increaseAccording to management, the increase
could be further segregated intocould be further segregated intocould be further segregated intocould be further segregated intocould be further segregated into
Rs5.0/kg on account of increase in gasRs5.0/kg on account of increase in gasRs5.0/kg on account of increase in gasRs5.0/kg on account of increase in gasRs5.0/kg on account of increase in gas
cost, and the balance to the increase incost, and the balance to the increase incost, and the balance to the increase incost, and the balance to the increase incost, and the balance to the increase in
operating expenditureoperating expenditureoperating expenditureoperating expenditureoperating expenditure
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The PNG prices have been left unchanged by IGL as any hike in the same would hit
the economics or inducement to switch from domestic LPG to domestic PNG.
Currently, the new PNG user enjoys a marginal advantage of 3.4% over the domestic
LPG users.
Earlier, we had harbored concerns over sustainability of the company's high-margin
business model, as the margins were fueled largely by the lower gas costs (subsidised
gas). IGL charged its CNG and PNG customers based on the prices of alternative
liquid fuel, while it procured subsidised gas. Thus, IGL enjoyed the benefits of subsidy
rather than passing it on to customers. We held that post end of IGL's marketingexclusivity in CY2011 a level playing field would emerge wherein IGL would be
required to source gas at higher prices in turn squeezing its marketing margins.
However, with the current hike in CNG prices by a significant 25.6%, our assumption
of margin compression no longer holds good. It also points at the absence of
regulatory risks in the near term.
Going ahead, given that KG-D6 and APM gas prices are freezed till FY2014, IGL
would not be required to make significant CNG price hikes barring a minor increase
due to change in the procurement mix and increase in operating expenditure. Thus,
the margin erosion risk has subsided substantially. Moreover, in spite of the recent
increase in the CNG prices in the NCT, the CNG prices in the region are the least in
the country owing to the lower taxes levied by the Delhi government ( refer Exhibit
4 & 5). Therefore, further increase in the CNG prices would not be a tough task.
Exhibit 2: Weighted Average gas prices
PPPPParticularsarticularsarticularsarticularsarticulars FY10FY10FY10FY10FY10 FY11EFY11EFY11EFY11EFY11E FY12EFY12EFY12EFY12EFY12E
APM gas purchased (mmscm)APM gas purchased (mmscm)APM gas purchased (mmscm)APM gas purchased (mmscm)APM gas purchased (mmscm) 748748748748748 767767767767767 803803803803803
as % of the total gas (%) 89.8 77.3 70.5
Cost of APM gas (Rs/scm) 5.4 8.0 8.5
Non-APM Gas purchased (mmscm)Non-APM Gas purchased (mmscm)Non-APM Gas purchased (mmscm)Non-APM Gas purchased (mmscm)Non-APM Gas purchased (mmscm) 8585858585 225225225225225 336336336336336
as % of the total gas (%) 10.2 22.7 29.5
Cost of Non-APM gas (Rs/scm) 11.9 12.1 11.8
WWWWWeighted average cost of gas (Rs/scm)eighted average cost of gas (Rs/scm)eighted average cost of gas (Rs/scm)eighted average cost of gas (Rs/scm)eighted average cost of gas (Rs/scm) 6.16.16.16.16.1 9.09.09.09.09.0 9.49.49.49.49.4
PPPPPrice per Kg (1 SCM = 1.31 kg)rice per Kg (1 SCM = 1.31 kg)rice per Kg (1 SCM = 1.31 kg)rice per Kg (1 SCM = 1.31 kg)rice per Kg (1 SCM = 1.31 kg) 8.08.08.08.08.0 11.711.711.711.711.7 12.412.412.412.412.4
Required Increase in CNG prices per KgRequired Increase in CNG prices per KgRequired Increase in CNG prices per KgRequired Increase in CNG prices per KgRequired Increase in CNG prices per Kg 3.743.743.743.743.74 0.650.650.650.650.65
Source: Company, Angel Research
Exhibit 3: PNG economics for domestic consumers
Cost of Domestic LPG (14.2kg cylinder, Rs) 310
Rs/ kg 21.9
Calorific value of LPG (Kcal) 11,007
Price for Rs/10,000Kcal 19.9
Cost for new PNG connection (Rs/scm) 15.9
Calorific value of PNG sold (Kcal) 8,300
Price for Rs/10,000Kcal 19.2
Price advantage over LPG (Rs) 0.68
Advantage (%)Advantage (%)Advantage (%)Advantage (%)Advantage (%) 3.43.43.43.43.4
Source: Company, Angel Research
Going ahead, given that KGGoing ahead, given that KGGoing ahead, given that KGGoing ahead, given that KGGoing ahead, given that KG-D6 and-D6 and-D6 and-D6 and-D6 and
APM gas prices are freezed till FY2014,APM gas prices are freezed till FY2014,APM gas prices are freezed till FY2014,APM gas prices are freezed till FY2014,APM gas prices are freezed till FY2014,
IGL would not be required to makeIGL would not be required to makeIGL would not be required to makeIGL would not be required to makeIGL would not be required to make
significant CNG price hikessignificant CNG price hikessignificant CNG price hikessignificant CNG price hikessignificant CNG price hikes
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IGL's profitability and fair value estimates are highly sensitive to the per unit change in
its gross margins. To put things in perspective, if the gross margins are reduced by
Rs1.0/scm from FY2011E onwards, our fair value estimates would decline by awhopping 26% to Rs221/share. Similarly, our earnings estimates also stands reduced
by 25.4% and 23.9% for FY2011E and FY2012E respectively under the same scenario.
However, with the recent increase in the CNG prices, the pricing risk has subsidised to
a greater extent. Factoring the same, we have reduced our discount rate/WACC
(weighted average cost of capital) by 50bp to 11.5% from 12.0% earlier.
Volumes to propel profitability
The conversion economics continues to remain strong irrespective of the recent hike in
CNG prices, as CNG vehicle continue offer savings of around 57.3% over the petrol
driven vehicles (largely on account of lower taxes on CNG compared to Petrol prices).Moreover, in Delhi penetration of the CNG vehicles is still at lower levels and launch
of the newer CNG variants cars by the automotive companies could keep conversions
in high growth orbit.
Exhibit 4: Comparative Taxes on CNG prices
StateStateStateStateState NCT of DelhiNCT of DelhiNCT of DelhiNCT of DelhiNCT of Delhi Uttar PUttar PUttar PUttar PUttar Pradeshradeshradeshradeshradesh HaryanaHaryanaHaryanaHaryanaHaryana GujaratGujaratGujaratGujaratGujarat MumbaiMumbaiMumbaiMumbaiMumbai ThaneThaneThaneThaneThane PunePunePunePunePune
Applicable TApplicable TApplicable TApplicable TApplicable Taxesaxesaxesaxesaxes
Service Tax on
City Gas Network (%) 10.30 10.30 10.30 10.30 10.30 10.30 10.30
Excise Duty +
Educational Cess (%) 14.42 14.42 14.42 14.42 14.42 14.42% 14.42
VAT (%) N.A. 13.50 12.50 12.25 12.50 12.50 12.50
Additional Vat N.A. N.A. N.A. 2.50 N.A. N.A. N.A.
Octroi N.A. N.A. N.A. N.A. N.A. 5% of Gas Cost 2.50
Source: Infraline, Angel Research
Exhibit 5: Comparative CNG prices across key cities in India
Name of the CityName of the CityName of the CityName of the CityName of the City CNG PCNG P
CNG PCNG PCNG Price (Rs/kg)rice (Rs/kg)
rice (Rs/kg)rice (Rs/kg)rice (Rs/kg)
Delhi 27.5
Rajahmundry 28.0
Kanpur 29.0
Bareilly 29.0
Surat, Bharuch, Ankleswar 30.0
Noida 30.6
Greater Noida 30.6
Ghaziabad 30.6
Lucknow 31.0
Mumbai 31.5
Mira Bhayandar 31.7
Navi Mumbai 31.8
Thane 32.4
Agra 35
Pune 35.4
Source: Infraline, Angel Research
With the recent increase in the CNG With the recent increase in the CNG With the recent increase in the CNG With the recent increase in the CNG With the recent increase in the CNG
prices, the pricing risk has subsidised toprices, the pricing risk has subsidised toprices, the pricing risk has subsidised toprices, the pricing risk has subsidised toprices, the pricing risk has subsidised to
a greater extent. Fa greater extent. Fa greater extent. Fa greater extent. Fa greater extent. Factoring the same, weactoring the same, weactoring the same, weactoring the same, weactoring the same, we
have reduced our discount rate/Whave reduced our discount rate/Whave reduced our discount rate/Whave reduced our discount rate/Whave reduced our discount rate/WAAAAACCCCCCCCCC
(weighted average cost of capital) by(weighted average cost of capital) by(weighted average cost of capital) by(weighted average cost of capital) by(weighted average cost of capital) by
50bp to 11.5% from 12.0%50bp to 11.5% from 12.0%50bp to 11.5% from 12.0%50bp to 11.5% from 12.0%50bp to 11.5% from 12.0%
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Exhibit 6: CNG saving over Petrol
PPPPParticularsarticularsarticularsarticularsarticulars FY2007FY2007FY2007FY2007FY2007 FY2008FY2008FY2008FY2008FY2008 FY2009FY2009FY2009FY2009FY2009 FY2010FY2010FY2010FY2010FY2010 CurrentCurrentCurrentCurrentCurrent
Petrol (Rs/litre) 45.37 43.65 47.25 43.93 47.43
CNG (Rs/kg) 18.98 19.18 18.90 20.55 27.50
Equivalent petrol prices (Rs/kg) 62 59 64 60 64
Savings (Rs/kg) 43 40 45 39 37
Savings over petrol (%) 69.2% 67.6% 70.5% 65.5% 57.3%
Source: PPAC, Angel Research
We expect strong growth in CNG conversion in IGL's area of operation driven by
discretionary CNG demand due to better economics. This coupled with strong growth
expected in the domestic PNG segment is likely to drive the company's volume growth
going ahead. We expect CNG volumes to register a CAGR of 14.4% over
FY2010-12E. The growth would be driven by additional 2,000 buses expected to hit
the road in FY2011E on account of the Commonwealth games along with strongconversion of private vehicles. We expect private vehicle conversion at 4,250/month
for FY2011E and FY2012E. Moreover, given talks of possible deregulation of the auto
fuel prices, the conversion trend could further gather momentum from current levels
and pose upside risk to our estimates. To keep pace with increasing CNG demand,
IGL is likely to commission additional 53 CNG stations over the period.
Source: Company, Angel Research
Exhibit 8: Strong vehicle conversions
-
100,000
200,000
300,000
400,000
500,000
FY2006 FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E
CNG Buses Auto RTV (LCVs) Others
Source: Company, Angel Research
Exhibit 7: CNG stations
134146 153
163181 191
219
-
50
100
150
200
250
FY2006 FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E
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The company's PNG segment contributes a mere 13% to overall revenues. Lower
contribution is however due to greater focus on development of the CNG infrastructure
in the past adhering to the judicial verdict. However, now with most of IGL's CNG
infrastructure in place, it has turned its focus towards the fast-growing PNG segment.
IGL expects to add 50,000 domestic users annually. Given the relatively lower
penetration of PNG in the region, we believe the targets can be achieved and aid
volumes. With this, we expect the PNG segment volumes to post a robust CAGR of
36.2% over FY2010-12E.
Owing to the significant improvement in gas availability in the country, IGL has also
started tapping the industrial users. IGL's industrial sales volumes constitute less than
5% of its overall sales volumes unlike peer Gujarat Gas, which has higher share of
industrial volumes. Thus, IGL's industrial segment has huge potential to ramp up in
the long run particularly with Delhi and its adjoining areas having demand of around
3-4mmscmd. The company currently supplies to around 25-26 users in the industrial
segment, with the off-take increasing from around 1,600/scm per day per user in
FY2010 to 4,500/scm per day per user now.
Overall volumes are expected to register 16.9% CAGR over FY2010-12E on robust
volume growth expected in CNG and PNG. We estimate revenue to register a robust
CAGR of 35.5% over FY2010-12E on the back of strong volumes and higher realisations
(on account of the 25.5% hike in CNG prices undertaken in Delhi to pass through the
increase in gas cost). Thus, we expect bottom-line to register 17.5% CAGR over the
mentioned period.
Growth beyond NCT - Scalability concerns reducing
Apart from the margin erosion concerns, lack of growth in the newer areas, viz. Noida,
Greater Noida, Ghaziabad, Faridabad and Gurgoan impacted performance of the
stock on the bourses. Pertinently, growth beyond the NCT was restricted for IGL due to
litigation and gas allocation constraints in the earlier years. In case of the NCR towns
of Faridabad and Gurgoan, networks were built by Adani Energy and Haryana City
Gas respectively, which prevented entry of IGL into these regions. Also, gas allocation
initially made to IGL for these regions were given to respective companies on the
directions of the Supreme Court. IGL's expansion plan in Ghaziabad was hit due to
Source: Company, Angel Research
Exhibit 9: EBITDA/scm likely to hold on
4.805.22
5.48
4.554.99 5.12
5.72
-
1.00
2.00
3.00
4.00
5.00
6.00
7.00
FY2006 FY2007 FY2008 FY2009 FY2010 FY2011EFY2012E
(Rs
/scm
)
Source: Company, Angel Research
Exhibit 10: PAT growth trend
14.5
30.0
26.5
(1.1)
24.9
13.4
21.9
(5.0)
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
0
50
100
150
200
250
300
350
FY2006 FY2008 FY2010 FY2012E
PAT (Rs Cr) PAT growth (%)
(Rs
cr)
(%)
WWWWWe expect the PNG volumes to post ae expect the PNG volumes to post ae expect the PNG volumes to post ae expect the PNG volumes to post ae expect the PNG volumes to post a
robust CArobust CArobust CArobust CArobust CAGR of 36.2% over FY2010-12EGR of 36.2% over FY2010-12EGR of 36.2% over FY2010-12EGR of 36.2% over FY2010-12EGR of 36.2% over FY2010-12E
Overall volumes are expected to registerOverall volumes are expected to registerOverall volumes are expected to registerOverall volumes are expected to registerOverall volumes are expected to register
16.9% CA16.9% CA16.9% CA16.9% CA16.9% CAGR over FY2010-12E onGR over FY2010-12E onGR over FY2010-12E onGR over FY2010-12E onGR over FY2010-12E on
robust volume growth expected in CNGrobust volume growth expected in CNGrobust volume growth expected in CNGrobust volume growth expected in CNGrobust volume growth expected in CNG
and PNGand PNGand PNGand PNGand PNG
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authorisation issues with the regulator. However, with the regulatory concerns already
addressed by the Delhi High Court, we expect growth in Noida, greater Noida and
Ghaziabad to take care of the scalability concerns.
According to the PNGRB, the demand estimates for Ghaziabad currently stands close
to 0.5mmscmd (18.4% of IGL's expected throughput for FY2011E), which could rise to
0.94mmscmd in the long run. Similarly, for Noida the demand estimates currently
stand at 0.14mmscmd, which could rise to 0.35mmscmd in the long run. Thus,
expansion in these geographies is likely to drive the company's growth going ahead.
Exhibit 11: Demand potential
PPPPParticularsarticularsarticularsarticularsarticulars NoidaNoidaNoidaNoidaNoida GhaziabadGhaziabadGhaziabadGhaziabadGhaziabad
Population (2001 Census, in mn) 0.30 0.96
Estimated households (mn) 0.07 0.18
VVVVVehicle Pehicle Pehicle Pehicle Pehicle Populationopulationopulationopulationopulation
Buses 3,150 7,200
Three wheelers 480 11,200
Four Wheelers 2,750 50,500
Estimated Current demand (mmscmd)Estimated Current demand (mmscmd)Estimated Current demand (mmscmd)Estimated Current demand (mmscmd)Estimated Current demand (mmscmd) 0.140.140.140.140.14 0.500.500.500.500.50
Estimated demand - 2020 (mmscmd)Estimated demand - 2020 (mmscmd)Estimated demand - 2020 (mmscmd)Estimated demand - 2020 (mmscmd)Estimated demand - 2020 (mmscmd) 0.350.350.350.350.35 0.940.940.940.940.94
Source: PNGRB, Angel Research
With the regulatory concerns already With the regulatory concerns already With the regulatory concerns already With the regulatory concerns already With the regulatory concerns already
addressed by the Delhi High Court, weaddressed by the Delhi High Court, weaddressed by the Delhi High Court, weaddressed by the Delhi High Court, weaddressed by the Delhi High Court, we
expect growth in Noida, greater Noidaexpect growth in Noida, greater Noidaexpect growth in Noida, greater Noidaexpect growth in Noida, greater Noidaexpect growth in Noida, greater Noida
and Ghaziabad to take care of theand Ghaziabad to take care of theand Ghaziabad to take care of theand Ghaziabad to take care of theand Ghaziabad to take care of the
scalability concernsscalability concernsscalability concernsscalability concernsscalability concerns
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Robust top-line on price increase and stable volume growth
IGL posted CAGR of 18.9% in overall volumes over FY2008-10, with the CNG segmentrecording 16.8% CAGR and the PNG segment registering healthy 38.3% CAGR in the
mentioned period. Going ahead, we expect IGL to register 16.9% CAGR in volumes
over FY2010-12E backed by expected strong growth in the CNG and PNG segment.
CNG volumes are projected to post CAGR of 14.4% over FY2010-12E primarily due
to high addition in private vehicles, which we expect to increase from around 2,13,000
in FY2010 to 3,15,000 in FY2012E. The Commonwealth Games, to be held in FY2011,
is also expected to result in healthy addition of DTC buses. In the PNG segment, we
expect robust consumption growth to continue as the company has fulfilled mandatory
CNG conversions. We expect the PNG segment to post a robust CAGR of 36.2% over
FY2010-12E, with the number of households having PNG connections increasing
from 1,80,000 in FY2010E to 2,80,000 in FY2012E.
IGL's revenues recorded CAGR of 23.6% during FY2008-10. We expect the company's
Revenue growth to expand and post robust CAGR of 35.5% over FY2010-12E mainly
on account of the substantial 25.6% CNG price hike (from Rs21.9 per kg to Rs27.5
per kg) undertaken in Delhi and also in the NCR region to pass through the impact of
substantial increase in gas cost coupled with strong volume growth.
OPMs to contract, EBITDA/scm to hold
IGL has long been under the scanner of various stakeholders due to high RoE and
EBITDA Margins. It managed superior margins compared to other CGD players like
Gujarat Gas as it procured gas from GAIL at APM prices, while the others procuredgas at market prices. However, with the ease with which the company managed to
pass through the increase in gas and operating costs, we expect the company to
Financial Analysis
Exhibit 12: Key Operating Assumptions
PPPPParticularsarticularsarticularsarticularsarticulars FY2009FY2009FY2009FY2009FY2009 FY2010FY2010FY2010FY2010FY2010 FY2011EFY2011EFY2011EFY2011EFY2011E FY2012EFY2012EFY2012EFY2012EFY2012E
Sales VSales VSales VSales VSales Volume breakolume breakolume breakolume breakolume break-up-up-up-up-up
CNG volumes (mmscm) 605 692 789 907
PNG volumes (mmscm) 54 82 132 152
Total volumes (mmscm) 660 774 922 1,059
Gas Sourcing VGas Sourcing VGas Sourcing VGas Sourcing VGas Sourcing Volume breakolume breakolume breakolume breakolume break-up-up-up-up-up
APM Gas (mmscm) 713 748 767 803
KG Gas (mmscm) - 85 225 336
Natural Gas consumed (mmscm) 713 833 992 1,139
Other AssumptionsOther AssumptionsOther AssumptionsOther AssumptionsOther Assumptions
APM Gas Price (Rs/scm) 5.3 5.4 8.0 8.5
KG Gas Price (Rs/scm) - 11.9 12.1 11.8
Blended cost of Gas sold (Rs/scm) 6.2 6.4 9.6 10.2
Other Operating Expenditure (Rs/scm) 2.2 2.6 2.7 2.9
EBITDA (Rs/scm) 4.5 5.0 5.1 5.7
Capex (Rs cr) 172 386 500 550
Source: Company, Angel Research
WWWWWe expect IGL to register 16.9% CAe expect IGL to register 16.9% CAe expect IGL to register 16.9% CAe expect IGL to register 16.9% CAe expect IGL to register 16.9% CAGRGRGRGRGRin volumes over FY2010-12E backed byin volumes over FY2010-12E backed byin volumes over FY2010-12E backed byin volumes over FY2010-12E backed byin volumes over FY2010-12E backed by
expected strong growth in the CNG andexpected strong growth in the CNG andexpected strong growth in the CNG andexpected strong growth in the CNG andexpected strong growth in the CNG and
PNG segmentPNG segmentPNG segmentPNG segmentPNG segment
WWWWWe expect the company's Revenuee expect the company's Revenuee expect the company's Revenuee expect the company's Revenuee expect the company's Revenue
growth to expand and post robust CAgrowth to expand and post robust CAgrowth to expand and post robust CAgrowth to expand and post robust CAgrowth to expand and post robust CAGRGRGRGRGR
of 35.5% over FY2010-12Eof 35.5% over FY2010-12Eof 35.5% over FY2010-12Eof 35.5% over FY2010-12Eof 35.5% over FY2010-12E
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maintain its EBITDA margin per unit of sales volume. But, as the same margin per unit
will be earned on higher sales, we estimate EBIDA margins to contract. Thus, we
expect OPMs to hover around 30% levels in FY2011E and FY2012E from around 35%
levels registered in FY2009 and FY2010.
Profit to rise despite higher depreciation
We estimate depreciation to increase by a whopping 48.6% yoy in FY2011E and
34.2% yoy in FY2012E due to estimated capex of around Rs500cr and Rs550cr in
FY2011E and FY2012E, respectively. The company plans to incur capex towards adding
around 53 CNG outlets and expanding its PNG roll out. During FY2008-10, IGL
posted 11.1% CAGR in Bottom-line despite cost pressures. Over FY2010-12E, we
expect Profit to register 17.5% CAGR on robust volume growth.
RoE to stabilise as margin pressures ease
Historically, IGL's RoE has been hovering around 30.0% levels. In FY2009 and FY2010,
the company's RoE stood at 27.4% and 28.6%, respectively. Going ahead, because of
the company's ability to maintain its margins, we expect RoE to be maintained around
similar levels of 27% in FY2011E and 27.6% in FY2012E.
WWWWWe expect Pe expect Pe expect Pe expect Pe expect Profit to register 17.5% CArofit to register 17.5% CArofit to register 17.5% CArofit to register 17.5% CArofit to register 17.5% CAGRGRGRGRGR
on robust volume growthon robust volume growthon robust volume growthon robust volume growthon robust volume growth
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Concerns
Regulatory risks:Regulatory risks:Regulatory risks:Regulatory risks:Regulatory risks: As per the PNGRB regulations, the regulator can only control
network tariffs, while the end product pricing is not controlled. However, if there is anychange in the regulation, which caps the overall returns to be made by the CGD
entity, there could be a change in our view on the stock. The concerns over fixation of
the overall returns have arisen especially after zero tariff bidding by various entities
such as IOC-Adani Energy for Ghaziabad, making a mockery of the entire bidding
exercise. 'Zero' tariff will be recouped by the bidding companies through the CNG
charges levied on users - household or industries - as they deem fit. So, it is believed
that if the retail prices are not regulated and regulations create monopolies, the
consumer interest is bound to get compromised.
Change in TChange in TChange in TChange in TChange in Tax structure of CNGax structure of CNGax structure of CNGax structure of CNGax structure of CNG::::: A large part of the arbitrage between the CNG
and petrol prices is primarily fueled due to the differential tax structure. In case of MS(petrol) and gas oil (diesel), taxes constitute 48.8% and 34.6% of the current selling
price, respectively. While the CNG attracts lower taxation at 14.4%. If the Delhi
government were to change the tax rate on CNG, it could impact margins as well as
the new vehicle conversions.
Source: PPAC, Angel Research
Exhibit 13: Break-up of Petrol, Diesel, CNG prices in Delhi
51.2534.64
14.42
48.7565.36
85.58
0
20
40
60
80
100
Petrol Diesel CNG
Taxes Prices without Taxes
(%)
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Outlook and Valuation
Following the recent hike in the CNG prices, the key headwinds for IGL by way of
expected margin contraction and reduction in earnings and return ratios are likely todissipate to a large extent. Relative ease in pass through of the APM gas price hike is
indicative of the absence of regulatory risks in the near term. This coupled with strong
CNG conversions and growth in newer geographies is likely to result in strong earnings
growth and result in re-rating of the stock.
We believe that even post end of the marketing exclusivity in CY2011E, IGL will be
able to maintain its margins, as the PNGRB regulations limits network and compression
tariffs with marketing margins being left out presuming it will be self-regulated due to
competitive forces. As for the impact of the end of the marketing exclusivity on volumes
is concerned, we believe that competition is likely to have minuscule impact on IGL's
volumes. On the CNG volumes front, IGL is likely to maintain large market share inthe visible future post end of marketing exclusivity due to its strong parentage (BPCL,
GAIL and Government of Delhi), tie-ups with oil marketing companies (OMCs) for
dispensing CNG, significant expansion of CNG stations till end of the exclusivity period.
Exhibit 14: Change in estimates
PPPPParticularsarticularsarticularsarticularsarticulars Old estimatesOld estimatesOld estimatesOld estimatesOld estimates New estimatesNew estimatesNew estimatesNew estimatesNew estimates % chg% chg% chg% chg% chg
Rs(cr)Rs(cr)Rs(cr)Rs(cr)Rs(cr) FY11EFY11EFY11EFY11EFY11E FY12EFY12EFY12EFY12EFY12E FY11EFY11EFY11EFY11EFY11E FY12EFY12EFY12EFY12EFY12E FY11EFY11EFY11EFY11EFY11E FY12EFY12EFY12EFY12EFY12E
Revenues 1,403 1,636 1,612 1,985 14.9 21.3
EBITDA 367 422 472 606 28.5 43.6
EBITDA Margins(%) 26.2 25.8 29.3 30.5
EPS 13.3 14.5 17.5 21.3 31.2 46.7
Source: Company, Angel Research
At current levels of Rs255, the stock is discounting 14.6x and 12.0x FY2011E and
FY2012E Earnings. IGL has historically traded in the range of 9-13x its one-year
forward earnings. We upgrade our DCF-based target price of the IGL to Rs301 (Rs210)
on the back of upward revision in earnings estimates and lower WACC estimates (to
reflect lower pricing risk). Hence, we upgrade the stock to Buy from Reduce.Hence, we upgrade the stock to Buy from Reduce.Hence, we upgrade the stock to Buy from Reduce.Hence, we upgrade the stock to Buy from Reduce.Hence, we upgrade the stock to Buy from Reduce.
CompanyCompanyCompanyCompanyCompany RoCE (%)RoCE (%)RoCE (%)RoCE (%)RoCE (%) P/E (x)P/E (x)P/E (x)P/E (x)P/E (x) P/B (x)P/B (x)P/B (x)P/B (x)P/B (x) EV/EBITDEV/EBITDEV/EBITDEV/EBITDEV/EBITDA (x)A (x)A (x)A (x)A (x)
FY10FY10FY10FY10FY10 FY11FY11FY11FY11FY11 FY12FY12FY12FY12FY12 FY10FY10FY10FY10FY10 FY11FY11FY11FY11FY11 FY12FY12FY12FY12FY12 FY10FY10FY10FY10FY10 FY11FY11FY11FY11FY11 FY12FY12FY12FY12FY12 FY10FY10FY10FY10FY10 FY11FY11FY11FY11FY11 FY12FY12FY12FY12FY12
IGL 38.1 33.8 31.6 16.6 14.6 12.0 4.3 3.6 3.0 8.9 7.7 6.3
Gujarat Gas 24.4 27.4 28.0 21.7 17.4 14.4 4.9 4.1 3.4 12.0 9.5 7.6
Exhibit 15: Comparative Valuation
CompanyCompanyCompanyCompanyCompany M. CapM. CapM. CapM. CapM. Cap TTTTTargetargetargetargetarget RatingRatingRatingRatingRating EBITDEBITDEBITDEBITDEBITDA Margin (%)A Margin (%)A Margin (%)A Margin (%)A Margin (%) EPS (Rs)EPS (Rs)EPS (Rs)EPS (Rs)EPS (Rs) RoE (%)RoE (%)RoE (%)RoE (%)RoE (%)
(Rs cr)(Rs cr)(Rs cr)(Rs cr)(Rs cr) PPPPPrice (Rs)rice (Rs)rice (Rs)rice (Rs)rice (Rs) FY10FY10FY10FY10FY10 FY11FY11FY11FY11FY11 FY12FY12FY12FY12FY12 FY10FY10FY10FY10FY10 FY11FY11FY11FY11FY11 FY12FY12FY12FY12FY12 FY10FY10FY10FY10FY10 FY11FY11FY11FY11FY11 FY12FY12FY12FY12FY12
IGL 3,575 301 Buy 35.7 29.3 30.5 15.4 17.5 21.3 28.6 27.0 27.6
Gujarat Gas 3,786 306 Neutral 19.7 21.2 20.6 13.6 17.0 20.4 23.6 25.8 25.8
Source: Company, Angel Research; Note: Gujarat Gas No's are for CY09, CY10, CY11
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Indraprastha Gas | Company Update
Calculation of FCalculation of FCalculation of FCalculation of FCalculation of Fair Vair Vair Vair Vair Valuealuealuealuealue
PPPPParticularsarticularsarticularsarticularsarticulars FY2011EFY2011EFY2011EFY2011EFY2011E FY2012EFY2012EFY2012EFY2012EFY2012E
Discount rate (%) 11.5 11.5
PV of cashflows (FY09-20E) 1,815 2,138
TTTTTerminal value calculationserminal value calculationserminal value calculationserminal value calculationserminal value calculations
Growth to perpetuity(%) 2.0 2.0
FCF in 2020 542 542
Exit FCF multiple 10.7 10.7
Exit EV/EBDITA multiple 5.3 5.3
Add: Terminal value (PV) 5,821 5,821
PV of terminal value 2,068 2,320
% of company value 53.3 52.0
EV 3,882 4,458
Less: Net Debt (FY09E) 77 248
Equity valueEquity valueEquity valueEquity valueEquity value 3,8063,8063,8063,8063,806 4,2104,2104,2104,2104,210
Shares O/s 14 14
Equity value per share 272 301
Source: Company, Angel Research
Target Price sensitivity with WACC and Terminal Growth Rate
11.3%11.3%11.3%11.3%11.3% 11.5%11.5%11.5%11.5%11.5% 11.8%11.8%11.8%11.8%11.8% 12.0%12.0%12.0%12.0%12.0% 12.3%12.3%12.3%12.3%12.3%
1.0%1.0%1.0%1.0%1.0% 287 283 280 277 274
1.5%1.5%1.5%1.5%1.5% 296 292 288 284 281
2.0%2.0%2.0%2.0%2.0% 305 301301301301301 296 292 289
2.5%2.5%2.5%2.5%2.5% 316 311 306 302 297
3.0%3.0%3.0%3.0%3.0% 328 322 317 312 307Source: Company, Angel Research
Exhibit 16: DCFExhibit 16: DCFExhibit 16: DCFExhibit 16: DCFExhibit 16: DCF-based V-based V-based V-based V-based Valuationaluationaluationaluationaluation
PPPPParticulars ( Rs Cr)articulars ( Rs Cr)articulars ( Rs Cr)articulars ( Rs Cr)articulars ( Rs Cr) FY09FY09FY09FY09FY09 FY10EFY10EFY10EFY10EFY10E FY11EFY11EFY11EFY11EFY11E FY12EFY12EFY12EFY12EFY12E FY13EFY13EFY13EFY13EFY13E FY14EFY14EFY14EFY14EFY14E FY15EFY15EFY15EFY15EFY15E FY16EFY16EFY16EFY16EFY16E FY17EFY17EFY17EFY17EFY17E FY18EFY18EFY18EFY18EFY18E FY19EFY19EFY19EFY19EFY19E FY20EFY20EFY20EFY20EFY20E
Net SalesNet SalesNet SalesNet SalesNet Sales
853853853853853
1,0781,0781,0781,0781,078
1,6061,6061,6061,6061,606
1,9791,9791,9791,9791,979
2,2162,2162,2162,2162,216
2,4522,4522,4522,4522,452
2,7032,7032,7032,7032,703
2,9592,9592,9592,9592,959
3,2193,2193,2193,2193,219
3,4833,4833,4833,4833,483
3,7533,7533,7533,7533,753
4,0284,0284,0284,0284,028
EBITDA 300 387 472 606 666 726 786 846 907 967 1,028 1,088
EBITEBITEBITEBITEBIT 233233233233233 309309309309309 357357357357357 451451451451451 464464464464464 502502502502502 566566566566566 619619619619619 672672672672672 724724724724724 776776776776776 822822822822822
Tax rate (T) (%) 33.1 33.7 33.7 33.7 33.7 33.7 33.7 33.7 33.7 33.7 33.7 33.7
NOPAT {EBIT*(1-T)} 156 205 236 299 308 333 375 410 445 480 514 545
(+) Depreciation 67 77 115 155 201 224 220 227 235 243 252 266
(+) Change in NWC 18 (19) (44) (6) (8) (4) (6) (5) (5) (4) (3) (3)
Operating Cash FlowsOperating Cash FlowsOperating Cash FlowsOperating Cash FlowsOperating Cash Flows 241241241241241 263263263263263 308308308308308 448448448448448 501501501501501 552552552552552 590590590590590 633633633633633 676676676676676 719719719719719 763763763763763 808808808808808
(-) Capex 172 386 500 550 350 300 100 105 110 116 122 266
FCFFFCFFFCFFFCFFFCFF 6969696969 (123)(123)(123)(123)(123) (192)(192)(192)(192)(192) (102)(102)(102)(102)(102) 151151151151151 252252252252252 490490490490490 528528528528528 566566566566566 603603603603603 641641641641641 542542542542542PV of FPV of FPV of FPV of FPV of Free Cash Flowsree Cash Flowsree Cash Flowsree Cash Flowsree Cash Flows (172)(172)(172)(172)(172) (81)(81)(81)(81)(81) 107107107107107 159159159159159 276276276276276 265265265265265 253253253253253 240240240240240 228228228228228 172172172172172
Source: Company, Angel Research
Calculation of Cost of CapitalCalculation of Cost of CapitalCalculation of Cost of CapitalCalculation of Cost of CapitalCalculation of Cost of Capital
Rf 7.5%
Risk premium 6.5%
Market rate of return (req return) 14.0%
Beta 0.48
Ke 10.6%
Stock risk premium 0.9%
WWWWWAAAAACCCCCCCCCC 11.5%11.5%11.5%11.5%11.5%
Source: Company, Angel Research
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Source: Company, Angel Research
Exhibit 20: One-Year Forward EV/EBITDA
Apr-0
4
Dec
-04
Aug
-05
Apr-0
6
Dec
-06
Aug
-07
Apr-0
8
Dec
-08
Aug
-09
Apr-1
0
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
3.5x 4.5x 5.5x 6.5x
EV(R
sc
r)
Source: Company, Angel Research
Exhibit 19: One-Year Forward P/BV
-
50
100
150
200
250
300
350
2.0x 2.5x 3.0x 4.0x 4.0x
Sh
are
Price
(Rs)
Apr-
04
Dec-0
4
Aug
-05
Apr-
06
Dec-0
6
Aug
-07
Apr-
08
Dec-0
8
Aug
-09
Apr-
10
Source: Company, Angel Research
Exhibit 18: Rolling and Median P/E
Source: Company, Angel Research
Exhibit 17: One-Year Forward P/E
7.0x 9.0x 11.0x 13.0x 15.0x
30
80
130
180
230
280
Apr
-04
Dec
-04
Aug
-05
Apr
-06
Dec
-06
Aug
-07
Apr
-08
Dec
-08
Aug
-09
Apr
-10
Sh
are
Pr
ice
(Rs
)
5.0
9.0
13.0
17.0
21.0
25.0
Apr-
04
Dec-0
4
Aug-0
5
Apr-
06
Dec-0
6
Aug-0
7
Apr-
08
Dec-0
8
Aug-0
9
Apr-
10
PE
mu
ltiple
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Company Background
IGL is in the retail gas distribution business supplying CNG to the Transport sector and
piped natural gas (PNG) to domestic and commercial sectors in the NCT region ofDelhi and NCR region. IGL was incorporated in December 1998 as a joint venture
(JV) between two oil & gas majors - GAIL and BPCL (each holding 22.5% stake) and
government of NCT of Delhi (5% stake) to implement the city gas distribution (CGD)
project in NCT. IGL currently has 193 CNG fuel stations operating in Delhi and NCR.
It plans to add around 53 CNG stations in FY2011 and FY2012. It has a CNG
compression capacity of 3.64mn kg/day and currently fuels more than 3,40,000
vehicles daily. In the PNG segment, IGL has provided PNG connections to over 1,82,000
domestic and 357 commercial customers. Going forward, IGL plans to add around
50,000 PNG customers every year. IGL is now expanding its network into the NCR
towns of Noida, Greater Noida and Ghaziabad.
Source: Company, Angel Research
Exhibit 25: IGL over the years
YYYYYearearearearear EventEventEventEventEvent
1997 GAIL started the Delhi City Gas Distribution Project - a CNG pilot project
to establish the viability of the venture and to resolve related technical
and safety issues.
1998 IGL was incorporated on December 23, 1998 under companies Act,
1956.
1999 IGL started its operations in February, 1999 by taking over and executing
Delhi City Gas Distribution Project in Delhi from GAIL(India) Ltd.
2000 Supreme court directive to convert entire city bus fleet (DTC and private)
to CNG by March 31, 2001; Replacement of all pre-1990 autos and
taxis with new vehicles on clean fuels, etc.
2000 Entered into long-term supply contract with GAIL for supply of
0.48 mmscmd APM Natural Gas
2001 MoPNG increased APM gas allocation to 0.98 mmscmd
2002 MoPNG increased APM gas allocation to 2.0 mmscmd to meet IGL's
requirement for NCT of Delhi
2003 Successful completion of IPO at Rs48 per share by Selling shareholders
2004 Marked a foray into NCR by setting up 2 CNG stations in Noida in
December 2004.
2004-05 Secured 0.70mscmd APM gas from MoPNG for expanding its gasdistribution network in Noida including Greater Noida, Gurgaon and
Faridabad.
2005-06 IGL formalized its agreement with GAIL for supply of 2 mmscmd; entered
into agreement with BPCL for supply of RLNG on long-term basis.
2008-09 IGL requested for additional 1.0mmscmd APM gas to meet increasing
demand. Planned addition of 50 more CNG stations over next two years
from 163 stations
2009-10 Received KG-D6 gas from RIL at EGoM approved price of
US $4.2/mmbtu
2010-11 The company's gas cost more than doubled with the government
increasing APM gas price to US $4.2/mmbtu; however IGL has passedon the impact of higher gas cost by increasing CNG price in Delhi by
whopping 25.6% to Rs27.5/kg (from Rs21.9/kg earlier).
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Business Model
IGL as a CGD player is primarily engaged in the business of distribution of CNG (87%
of FY2010 Net Sales). IGL's CNG users can be classified into mandatory anddiscretionary users. The mandatory users (compulsory users as mandated by law)
include DTC and private buses, RTVs and Autos. Discretionary users of CNG include
private cars, which use CNG due to the low running cost. While initial phase of
conversion was driven by mandatory users, current conversions are driven by
discretionary users.
Source: Company, Angel Research
Exhibit 26: Sales break-up
IGL is currently pricing its products at a discount to alternative fuels in both the CNG
and PNG segments. In the CNG segment, IGL has priced its gas at a discount to
petrol and diesel prices. CNG is priced at 57.3% discount to petrol and 40.6% to
diesel. Similarly, in the domestic PNG segment the fuel price is indexed to the
administered retail selling price of domestic LPG (14.2 kg) cylinder in the NCT, as
applicable from time to time, taking into account the respective heating values of
natural gas and LPG. In the small commercial users segment, PNG is indexed to
commercial LPG (19 kg) cylinder in the NCT of Delhi, as applicable from time to time,
taking into account the respective heating values of natural gas and LPG. Large
commercial users (big hotels, etc) are the PNG users replacing LDO and commercial
LPG. Thus, price in the segment is indexed to weighted average price of LDO and
commercial LPG in the NCT taking into account the respective heating values of natural
gas, LPG and LDO.
Gas sourcing is an important aspect of the CGD business. GAIL is the sole supplier of
APM natural gas to IGL. The company has gas purchase agreement for 2.2mmscmd
with GAIL. Gas is received at various points of the Hazira-Bijaipur-Jagdishpur (HBJ)
pipeline around Delhi. As the gas cost is denominated in Rupee terms, IGL is insulated
from exchange rate risks. The gas, which was available at subsidised APM prices of
around US $1.8/mmbtu, is now aligned with RIL's KG-D6 price of US $4.2/mmbtu. In
the previous fiscal, IGL entered into a gas sales and purchase agreement (GSPA) with
RIL for supply of 0.31mmscmd of gas from the KG-D6 fields scalable to 0.5mmscmd.
IGL is using RIL's gas for expanding its presence in the Delhi. IGL has also entered into
a gas transportation agreement (GTA) with Reliance Gas Transportation Infrastructure.
91.5 90.2 89.2 88.3 87.185.2 86.0
8.5 9.8 10.8 11.7 12.9 14.8 14.0
75
80
85
90
95
100
FY2006 FY2007 FY2008 FY2009E FY2010E FY2011E FY2012E
CNG Sales (% of Total) PNG Sales (% of Total)
(%)
Initial phase of conversion was drivenInitial phase of conversion was drivenInitial phase of conversion was drivenInitial phase of conversion was drivenInitial phase of conversion was driven
by mandatory users, current conversionsby mandatory users, current conversionsby mandatory users, current conversionsby mandatory users, current conversionsby mandatory users, current conversionsdriven by discretionary usersdriven by discretionary usersdriven by discretionary usersdriven by discretionary usersdriven by discretionary users
CNG and PNG selling price is currentlyCNG and PNG selling price is currentlyCNG and PNG selling price is currentlyCNG and PNG selling price is currentlyCNG and PNG selling price is currently
determined visdetermined visdetermined visdetermined visdetermined vis--vis relative prices of--vis relative prices of--vis relative prices of--vis relative prices of--vis relative prices of
alternative fuelsalternative fuelsalternative fuelsalternative fuelsalternative fuels
APM gas, which was available at APM gas, which was available at APM gas, which was available at APM gas, which was available at APM gas, which was available at
subsidised APM prices of around USsubsidised APM prices of around USsubsidised APM prices of around USsubsidised APM prices of around USsubsidised APM prices of around US
$1.8/mmbtu, is now aligned with RIL's$1.8/mmbtu, is now aligned with RIL's$1.8/mmbtu, is now aligned with RIL's$1.8/mmbtu, is now aligned with RIL's$1.8/mmbtu, is now aligned with RIL's
KGKGKGKGKG-D6 price of US $4.2/mmbtu-D6 price of US $4.2/mmbtu-D6 price of US $4.2/mmbtu-D6 price of US $4.2/mmbtu-D6 price of US $4.2/mmbtu
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Profit & Loss Statement Rs crore
Y/E MarchY/E MarchY/E MarchY/E MarchY/E March FY2007FY2007FY2007FY2007FY2007 FY2008FY2008FY2008FY2008FY2008 FY2009FY2009FY2009FY2009FY2009 FY2010FY2010FY2010FY2010FY2010 FY2011EFY2011EFY2011EFY2011EFY2011E FY2012EFY2012EFY2012EFY2012EFY2012E
Gross sales 706 810 962 1,213 1,804 2,225
Less: Excise duty 92 104 109 135 198 246
Net Sales 614 706 853 1,078 1,606 1,979
Other operating income - - - 6 6 6
TTTTTotal operating incomeotal operating incomeotal operating incomeotal operating incomeotal operating income 614614614614614 706706706706706 853853853853853 1,0841,0841,0841,0841,084 1,6121,6121,6121,6121,612 1,9851,9851,9851,9851,985
% chg 15.0 20.8 27.1 48.7 23.1
Total Expenditure 359 406 553 697 1,140 1,379
Purchase of gas 268 303 411 495 888 1,076
Staff expenditure 14 15 24 31 38 46
Other operating expenditure 77 88 118 172 213 256
EBITDEBITDEBITDEBITDEBITDAAAAA 255255255255255 300300300300300 300300300300300 387387387387387 472472472472472 606606606606606
% chg 17.6 0.0 28.8 22.0 28.5
(% of Net Sales) 41.6 42.5 35.2 35.7 29.3 30.5
Depreciation and amortisation 60 63 67 77 115 155
EBITEBITEBITEBITEBIT 195195195195195 237237237237237 233233233233233 309309309309309 357357357357357 451451451451451
% chg 21.5 (2.0) 32.8 15.4 26.6
(% of Net Sales) 31.8 33.6 27.3 28.7 22.2 22.8
Interest & other Charges - - - - 12 28
Other Income 10 23 26 15 24 26
(% of PBT) 5.0 9.0 10.1 4.7 6.5 5.7
Share in profit of Associates - - - - - -
Recurring PBTRecurring PBTRecurring PBTRecurring PBTRecurring PBT 206206206206206 261261261261261 259259259259259 324324324324324 369369369369369 449449449449449
% chg 26.9 (0.8) 25.3 13.6 21.9
Extraordinary Expense/(Inc.) - - - - - -
PBT (reported)PBT (reported)PBT (reported)PBT (reported)PBT (reported) 206206206206206 261261261261261 259259259259259 324324324324324 369369369369369 449449449449449
Tax 68 86 86 109 124 151
(% of PBT) 32.9 33.1 33.4 33.6 33.7 33.7
PPPPPAAAAAT (reported)T (reported)T (reported)T (reported)T (reported) 138138138138138 174174174174174 172172172172172 215215215215215 244244244244244 298298298298298
Add: Share of earnings of asso.Add: Share of earnings of asso.Add: Share of earnings of asso.Add: Share of earnings of asso.Add: Share of earnings of asso. ----- ----- ----- ----- ----- -----
Less: Minority interest (MI) - - - - - -
Prior period items - - - - - -
PPPPPAAAAAT after MI (reported)T after MI (reported)T after MI (reported)T after MI (reported)T after MI (reported) 138138138138138 174174174174174 172172172172172 215215215215215 244244244244244 298298298298298
ADJADJADJADJADJ. P. P. P. P. PAAAAATTTTT 138138138138138 174174174174174 172172172172172 215215215215215 244244244244244 298298298298298
% chg 26.5 (1.1) 24.9 13.4 21.9
(% of Net Sales) 22.5 24.7 20.2 20.0 15.2 15.0
Basic EPS (Rs)Basic EPS (Rs)Basic EPS (Rs)Basic EPS (Rs)Basic EPS (Rs) 9.99.99.99.99.9 12.512.512.512.512.5 12.312.312.312.312.3 15.415.415.415.415.4 17.517.517.517.517.5 21.321.321.321.321.3
FFFFFully Diluted EPS (Rs)ully Diluted EPS (Rs)ully Diluted EPS (Rs)ully Diluted EPS (Rs)ully Diluted EPS (Rs) 9.99.99.99.99.9 12.512.512.512.512.5 12.312.312.312.312.3 15.415.415.415.415.4 17.517.517.517.517.5 21.321.321.321.321.3
% chg 26.5 (1.1) 24.9 13.4 21.9
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Indraprastha Gas | Company Update
Balance Sheet Rs crore
Y/E MarchY/E MarchY/E MarchY/E MarchY/E March FY2007FY2007FY2007FY2007FY2007 FY2008FY2008FY2008FY2008FY2008 FY2009FY2009FY2009FY2009FY2009 FY2010EFY2010EFY2010EFY2010EFY2010E FY2011EFY2011EFY2011EFY2011EFY2011E FY2012EFY2012EFY2012EFY2012EFY2012E
SOURCES OF FUNDSSOURCES OF FUNDSSOURCES OF FUNDSSOURCES OF FUNDSSOURCES OF FUNDS
Equity Share Capital 140 140 140 140 140 140
Preference Capital - - - - - -
Reserves& Surplus 328 436 543 685 844 1,037
Shareholders FShareholders FShareholders FShareholders FShareholders Fundsundsundsundsunds 468468468468468 576576576576576 683683683683683 825825825825825 984984984984984 1,1771,1771,1771,1771,177
Minority Interest - - - - - -
Total Loans - - - - 150 350
Net Deferred Tax Liability 30 24 21 17 13 13
Deposits from customers 5 7 27 48 73 98
TTTTTotal Liabilitiesotal Liabilitiesotal Liabilitiesotal Liabilitiesotal Liabilities 503503503503503 607607607607607 731731731731731 890890890890890 1,2191,2191,2191,2191,219 1,6371,6371,6371,6371,637
APPLICAAPPLICAAPPLICAAPPLICAAPPLICATION OF FUNDSTION OF FUNDSTION OF FUNDSTION OF FUNDSTION OF FUNDS
Gross Block 613 668 817 1,105 1,535 2,060
Less: Acc. Depreciation 250 310 378 455 570 725
Net Block 363 358 439 650 965 1,335
Capital Work-in-Progress 31 59 82 180 250 275
Goodwill - - - - - -
InvestmentsInvestmentsInvestmentsInvestmentsInvestments 128128128128128 109109109109109 104104104104104 3535353535 3535353535 3535353535
Current Assets 106 228 259 217 259 328
Cash 40 140 146 85 73 102
Loans & Advances 25 41 55 59 88 109
Other 40 47 58 73 97 117
Current liabilities 125 146 154 192 289 335
Net Current AssetsNet Current AssetsNet Current AssetsNet Current AssetsNet Current Assets (19)(19)(19)(19)(19) 8282828282 106106106106106 2525252525 (31)(31)(31)(31)(31) (8)(8)(8)(8)(8)
Mis. Exp. not written off - - - - - -
TTTTTotal Assetsotal Assetsotal Assetsotal Assetsotal Assets 503503503503503 607607607607607 731731731731731 890890890890890 1,2191,2191,2191,2191,219 1,6371,6371,6371,6371,637
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Indraprastha Gas | Company Update
Cash Flow Statement Rs crore
Y/E MarchY/E MarchY/E MarchY/E MarchY/E March FY2007FY2007FY2007FY2007FY2007 FY2008FY2008FY2008FY2008FY2008 FY2009FY2009FY2009FY2009FY2009 FY2010EFY2010EFY2010EFY2010EFY2010E FY2011EFY2011EFY2011EFY2011EFY2011E FY2012EFY2012EFY2012EFY2012EFY2012E
Profit before tax 206 261 259 324 369 449
Depreciation 60 63 67 77 115 155
Deposits accepted during the year 1 1 20 21 25 25
Change in Working Capital 29 (2) (18) 19 44 6
Less: Other income (10) (23) (26) (15) (24) (26)
Direct taxes paid (73) (93) (89) (113) (129) (151)
Cash Flow from OperationsCash Flow from OperationsCash Flow from OperationsCash Flow from OperationsCash Flow from Operations 213213213213213 207207207207207 212212212212212 314314314314314 400400400400400 458458458458458
(Inc.)/ Dec. in Fixed Assets (58) (83) (172) (386) (500) (550)
(Inc.)/ Dec. in Investments (85) 19 5 69 - -
Other income 10 23 26 15 24 26
Cash Flow from InvestingCash Flow from InvestingCash Flow from InvestingCash Flow from InvestingCash Flow from Investing (133)(133)(133)(133)(133) (41)(41)(41)(41)(41) (141)(141)(141)(141)(141) (302)(302)(302)(302)(302) (476)(476)(476)(476)(476) (524)(524)(524)(524)(524)
Issue of Equity - - - - - -
Inc./(Dec.) in loans - - - - 150 200
Dividend Paid (Incl. Tax) (40) (49) (66) (74) (86) (105)
Others (10) (18) 0 - - -
Cash Flow from FCash Flow from FCash Flow from FCash Flow from FCash Flow from Financinginancinginancinginancinginancing (50)(50)(50)(50)(50) (67)(67)(67)(67)(67) (65)(65)(65)(65)(65) (74)(74)(74)(74)(74) 6464646464 9595959595
Inc./(Dec.) in Cash 29 99 6 (61) (12) 29
Opening Cash balancesOpening Cash balancesOpening Cash balancesOpening Cash balancesOpening Cash balances 1111111111 4040404040 140140140140140 146146146146146 8585858585 7373737373
Closing Cash balancesClosing Cash balancesClosing Cash balancesClosing Cash balancesClosing Cash balances 4040404040 140140140140140 146146146146146 8585858585 7373737373 102102102102102
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Indraprastha Gas | Company Update
Key Ratios
Y/E MarchY/E MarchY/E MarchY/E MarchY/E March FY2007FY2007FY2007FY2007FY2007 FY2008FY2008FY2008FY2008FY2008 FY2009FY2009FY2009FY2009FY2009 FY2010EFY2010EFY2010EFY2010EFY2010E FY2011EFY2011EFY2011EFY2011EFY2011E FY2012EFY2012EFY2012EFY2012EFY2012E
VVVVValuation Ratio (x)aluation Ratio (x)aluation Ratio (x)aluation Ratio (x)aluation Ratio (x)
P/E (on FDEPS) 25.9 20.5 20.7 16.6 14.6 12.0
P/CEPS 18.1 15.1 14.9 12.2 9.9 7.9
P/BV 7.6 6.2 5.2 4.3 3.6 3.0
Dividend yield (%) 1.2 1.6 1.6 1.8 2.1 2.5
EV/Sales 5.5 4.7 3.9 3.2 2.2 1.9
EV/EBITDA 13.4 11.1 11.1 8.9 7.7 6.3
EV/Total Assets 6.8 5.5 4.5 3.9 3.0 2.3
PPPPPer Share Data (Rs)er Share Data (Rs)er Share Data (Rs)er Share Data (Rs)er Share Data (Rs)
EPS (Basic) 9.9 12.5 12.3 15.4 17.5 21.3
EPS (fully diluted) 9.9 12.5 12.3 15.4 17.5 21.3
Cash EPS 14.1 16.9 17.1 20.9 25.7 32.3
DPS 3.0 4.0 4.0 4.5 5.2 6.4
Book Value 33.4 41.2 48.8 58.9 70.3 84.1
Dupont Analysis (%)Dupont Analysis (%)Dupont Analysis (%)Dupont Analysis (%)Dupont Analysis (%)
EBIT margin 31.8 33.6 27.3 28.7 22.2 22.8
Tax retention ratio 67.2 67.0 66.9 66.3 66.3 66.3
Asset turnover (x) 1.8 2.0 2.0 1.7 1.7 1.5
ROIC (Post-tax) 37.5 45.9 37.1 32.9 25.2 23.0
Cost of Debt (Post Tax) - - - - - -
Leverage (x) - - - - - -
Operating ROE 37.5 45.9 37.1 32.9 25.2 23.0
Returns (%)Returns (%)Returns (%)Returns (%)Returns (%)
ROCE (Pre-tax) 42.4 42.8 34.8 38.1 33.8 31.6
Angel ROIC (Pre-tax) 61.2 78.7 66.6 62.5 49.1 43.3
ROE 32.6 33.4 27.4 28.6 27.0 27.6
TTTTTurnover ratios (x)urnover ratios (x)urnover ratios (x)urnover ratios (x)urnover ratios (x)
Asset Turnover (Gross Block) 1.1 1.1 1.1 1.1 1.2 1.1
Inventory / Sales (days) 11.7 11.3 10.0 9.1 8.5 9.2
Receivables (days) 11.2 10.7 11.7 12.2 10.0 9.7
Payables (days) 66.2 67.9 53.1 53.8 54.6 64.1
WC cycle (ex-cash) (days) (26.8) (30.4) (21.1) (16.9) (18.5) (19.6)
Solvency ratios (x)Solvency ratios (x)Solvency ratios (x)Solvency ratios (x)Solvency ratios (x)
Net debt to equity (0.4) (0.4) (0.4) (0.1) 0.0 0.2
Net debt to EBITDA (0.7) (0.8) (0.8) (0.3) 0.1 0.4
Interest Coverage (EBIT/Interest) - - - - - 16.1
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Indraprastha Gas
Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)
Ratings (Returns) :
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Indraprastha Gas
Address: Acme Plaza, A Wing, 3rd Floor, M.V. Road, Opp. Sangam Cinema, Andheri (E), Mumbai - 400 059.
Tel : (022) 3952 4568 / 4040 3800
Research Team
Fundamental:Sarabjit Kour Nangra VP-Research, Pharmaceutical [email protected]
Vaibhav Agrawal VP-Research, Banking [email protected]
Vaishali Jajoo Automobile [email protected]
Shailesh Kanani Infrastructure, Real Estate [email protected]
Anand Shah FMCG , Media [email protected]
Deepak Pareek Oil & Gas [email protected]
Puneet Bambha Capital Goods, Engineering [email protected]
Sushant Dalmia Pharmaceutical [email protected]
Rupesh Sankhe Cement, Power [email protected]
Param Desai Real Estate, Logistics, Shipping [email protected]
Sageraj Bariya Fertiliser, Mid-cap [email protected]
Viraj Nadkarni Retail, Hotels, Mid-cap [email protected] Jain Metals & Mining [email protected]
Amit Rane Banking [email protected]
Jai Sharda Mid-cap [email protected]
Sharan Lillaney Mid-cap [email protected]
Amit Vora Research Associate (Oil & Gas) [email protected]
V Srinivasan Research Associate (Cement, Power) [email protected]
Aniruddha Mate Research Associate (Infra, Real Estate) [email protected]
Mihir Salot Research Associate (Logistics, Shipping) [email protected]
Chitrangda Kapur Research Associate (FMCG, Media) [email protected]
Vibha Salvi Research Associate (IT, Telecom) [email protected]
Pooja Jain Research Associate (Metals & Mining) [email protected]
Technicals:
Shardul Kulkarni Sr. Technical Analyst [email protected]
Mileen Vasudeo Technical Analyst [email protected]
Derivatives:
Siddarth Bhamre Head - Derivatives [email protected]
Jaya Agarwal Derivative Analyst [email protected]
Institutional Sales Team:
Mayuresh Joshi VP - Institutional Sales [email protected]
Abhimanyu Sofat AVP - Institutional Sales [email protected]
Nitesh Jalan Sr. Manager [email protected]
Pranav Modi Sr. Manager [email protected] Jangir Sr. Manager [email protected]
Ganesh Iyer Sr. Manager [email protected]
Jay Harsora Sr. Dealer [email protected]
Meenakshi Chavan Dealer [email protected]
Gaurang Tisani Dealer [email protected]
Production Team:
Bharathi Shetty Research Editor [email protected]
Bharat Patil Production [email protected]
Dilip Patel Production [email protected]