Indraprastha Gas Limited

BSE: 532514   |   NSE: IGL   |   ISIN: INE203G01019

 

The Business
Indraprastha Gas (IGL) is in the business of supplying compressed natural gas (CNG) to the transport Sector and piped natural gas (PNG) to domestic and commercial sectors in the National Capital Territory (NCT) region of Delhi.
Capacity
It has a CNG compression capacity of 3.5mn Kg per day and fuels more than 300,000 vehicles daily. In the PNG segment, IGL provides natural gas to over 210,000 domestic and 300 commercial customers and re-gasified liquid natural gas (R-LNG) to 58 industrial consumers.

Delhi Government introduced 2,000 new buses & ~20,000 new radio taxis during the Common Wealth games. In addition, introduction of CNG models by car manufacturers along with conversion to CNG by private car owners provides significant opportunity for the company.

Visibile Future Plans
In line IGL has consistently increased the number of CNG stations from 181 in FY09 to 241 stations by the end of FY10 and it plans to further strengthen its CNG stations count to 281 by the end of FY11. Compression capacity will also increase to over 3.9mn Kg per day (addition of 11% over the current level of 3.5mn kg per day) by FY13E.
PNG is priced at 19-21% lower to LPG and IGL could target a consumer base of 0.95 mn households 0.35 million a year by FY13 compared to 0.25 million consumers as on date. PNG sales are estimated to grow from Rs 143.6 Crore in FY10 to Rs 520 Crore  in FY13 (at a CAGR of  70% assuming a 5 percent increase in rate per year).

IGL is in midst of a large-scale expansion to augment its PNG infrastructure in existing areas as well as in new areas in Delhi. IGL plans to spend around  Rs. 3000Cr over a period of 5 years to augment its infrastructure. The Company plans to provide new PNG connection to over 35,000 domestic households every year in Delhi as well as NCR towns of Noida, Greater Noida and Ghaziabad. IGL operated as a monopoly gas distributor in the city of Delhi for past 8 years. Based on the new regulations by the PNGRB, the Delhi City gas distribution market will open up to competition after December 2011. Although IGL’s marketing exclusivity will end, it will retain exclusivity as ‘city gas carrier’ in Delhi till FY25. IGL would charge a network tariff of 14% for permitting other entrants for using its network. The new players can only develop pipeline infrastructure in areas where IGL does not have any presence.

IGL has tied up its future gas requirements by signing Gas Sale Agreements with GAIL, BPCL and RIL. The Ministry of Petroleum & Natural Gas has authorized Indraprastha Gas to lay, build, operate or expand city gas distribution network in geographical area of Ghaziabad.

At EPS estimate of Rs 18.4 and Rs 23.2 for FY11E and FY12E respectively, imply earnings CAGR of 22% over FY10-12E. After considering the increase outgo on interest outgo on capital funding and increase in earnings a detailed above. At current level of Rs 315 (06 April 2011), the stock is trading at 17x and 13.6x FY11E and FY12E Earnings . It is better to watch the Half year earning of FY 12 and implementation of capital projects before estimating earning for FY 13

IGL is going to benefit from more and more conversion to CNG because there is almost 45% gap with petrol and 18% gap with diesel and even cheaper compared to Auto LPG. Both PNG and CNG segments are growing very well and expect the volume growth  of 25% upwards  for the next two years FY 12 & FY13 in the earning is sustainable.

UPDATES ON RESULTS
The results for four quarter trailing December 2012 is more or less within range
Trailing EPS at 24.27 as against 23.20 estimated back in April 2011
The OPM has fallen from estimated 29 to 23.25 and NPM from estimated 15.5 to 10.76
The total income however shows 150 percent increase over estimate due to increased price
of CNG and PNG in the market.

UPDATES on developments
In April 2012, Petroleum and Natural Gas Regulatory Board PNGRB had ordered
IGL to cut network tariff by around 60% retrospectively from April 2008.
The total refund on account of the  of the order was pegged between Rs. 900-1,200 crore.
IGL opposed the order  moved the Delhi High Court against the regulator’s order.
In June,2012 the Delhi High Court quashed the PNGRB order dated April 09, 2012 stating
the government regulator did not have the power to fix network tariff or the power to
decide any component of the retail price.

Against this Petroleum & Natural Gas Regulatory Board (PNGRB) has filed a review
petition and then a special leave petition in the Supreme Court against a Delhi High Court
order that questioned its power to fix network tariff.
The hearing of the same is posted in April 2013

THE FURTHER MOVEMENT IN IGL WILL DEPEND UPON THE OUTCOME OF
Hon. SUPREME COURTS DECISION IN CASE OF PNGRB vs IGL