Expanding gas
Moneylife Digital Team 09 February 2011

Indraprastha Gas has enjoyed secular growth

In the 4 December 2008 issue, Moneylife had recommended a ‘buy’ for Indraprastha Gas (IGL) scrip (at around Rs92) and to hold it for steady long-term gains. The stock has reached around Rs328 on 21 January 2011. The stock has delivered great returns. The New Delhi-based company is in the retail gas distribution business—supplying compressed natural gas (CNG) to the transport sector, piped natural gas (PNG) to the domestic and commercial sectors and re-gassified liquid natural gas (R-LNG) to the industrial sector in the towns of the National Capital Territory (NCT) of Delhi and the National Capital Region (NCR). Among the company’s competitors are Gujarat Gas and Gujarat State Petroleum.

Incorporated in 1998, IGL took over the Delhi City Gas Distribution Project from GAIL (India) Ltd in 1999. With the backing of strong promoters—GAIL and Bharat Petroleum Corporation Ltd (BPCL)—IGL plans to provide natural gas to the entire NCR.

During FY09-10, IGL’s gross turnover increased by 26% to Rs1,213.13 crore from Rs962.14 crore in FY08-09. Net profit also went up by 25% to Rs215.50 crore in FY09-10 from Rs172.47 crore in the previous year.

The company recommended dividend of 45% (Rs4.50 per share) as against 40% (Rs4 per share) in the previous year. Growth has been steady. The total number of CNG stations increased to 241 in March 2010 from 181 in March 2009. During FY09-10, the company added 44,000 PNG connections and 40 commercial customers.

The company is supplying R-LNG to around 21 industrial consumers in Delhi. It has also started supplying R-LNG to the industrial segment in Noida and Greater Noida. During FY09-10, the company started CNG supply to vehicles in Ghaziabad for the first time. The online CNG station was also set up during the year. The company has planned capital investment of Rs240 crore to expand its CNG and PNG networks in NCT and NCR towns of Noida, Greater Noida and Ghaziabad.  

During the December 2010 quarter, IGL’s net profit rose 14.01% to Rs67.19 crore from Rs58.93 crore in the corresponding quarter last year. Its revenues grew 60% to Rs457 crore from Rs284.61 crore in the corresponding quarter last year. The company’s raw material cost more than doubled to Rs259.87 crore, bringing down the operating profit margin to 28% from 36% in the year-ago period.

GAIL is the sole gas supplier to the company and, since it is one of the promoters of the company, IGL does not foresee any risk in oversupply of natural gas. The company has agreements with GAIL, BPCL and Reliance Industries for additional gas supplies to meet its growing requirements. The outlook for the company is positive. The growth drivers for increased CNG demand are car makers coming up with CNG variants. IGL’s average growth in revenues and operating profit over the past five quarters has been 45% and 31%, respectively. Its operating margin is a hefty 31% and return on net worth is 26%. Market-cap to revenues is 2.51, while its market-cap to operating profit is 8.87 times. The stock enjoys a P/E of 21.29 and a dividend yield of 1.37%. Buy at its current price.

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