Stock Review: Indraprastha Gas

The increase in prices of compressed natural gas (CNG) and piped natural gas (PNG) has been visible in the performance of Indraprastha Gas Limited (IGL) since the June 2010 quarter. The December 2010 quarter was no different with the company reporting 59.66 per cent growth in revenues to `457.09 crore. CNG volumes (2.2mmscmd) grew 13.7 per cent and while PNG volumes (0.47mmscmd) grew 92.4 per cent, helping total volumes (2.67mmscmd) grow 18.9 per cent.

Analysts at IIFL see a rise in use of CNG in private vehicles driving growth. The spreading pipeline infrastructure and household penetration have been helping PNG volumes.

During the quarter, average realisations from CNG (Rs 27.4 a kg) and PNG (Rs 19.4 per scm) were higher than `21.9 a kg and `16.1 per scm, respectively, in the corresponding period last year.

While average realisations were helped by price increases, revised APM (administered price mechanism) prices meant raw material costs (gas sourcing costs) rose two-fold to 259.87 crore. This led to a 842 basis point (bps) drop in earnings before interest, taxes, depreciation and amortisation margin to 28.3 per cent.

However, the net profit grew 14 per cent to `67.2 crore.

Analysts are positive on IGL in view of increasing volumes and firm prices. Conversion to CNG remains aviable option given that petrol prices have already been deregulated and diesel deregulation is on the cards.

The company has raised prices of CNG and PNG in Delhi by 4.5 per cent (Rs 1.25) and over 12 per cent (Rs 2.10), respectively, from January 1.

Analysts at Angel Broking estimate 16.9 per cent compound annual growth rate (CAGR) growth in volumes over FY10-12. Revenues are expected to grow 26 per cent CAGR, while profit growth is pegged at 12 per cent CAGR during FY10-12.

Increase in prices and volumes help the company post an impressive top-line growth