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Indraprastha Gas 3QFY2014 performance highlights and results update

February 12, 2014, Wednesday, 07:39 GMT | 02:39 EST | 12:09 IST | 14:39 SGT
Contributed by Angel Broking


Indraprastha Gas (IGL)’s 3QFY2014 top-line grew by 19.8% yoy. However, its PAT growth was muted at 2.9% yoy on account of higher costs. We maintain our Neutral recommendation on the stock.
 
Top-line growth driven by both volume and realizations: The company’s net sales grew by 19.8% yoy to Rs.1,041cr, driven by increase in both volume and realization. PNG volumes grew 6.9% yoy to 89mmscm while the Average CNG and PNG realization increased 19.4% and 19.9% yoy to Rs.45.4/kg and Rs.30.8/scm respectively.
 
Higher gas cost dents operating performance: The cost of goods sold increased by 24.2% yoy to Rs.715cr due to higher RLNG costs. Hence, despite higher growth in net sales, the EBITDA increased by a muted 3.9% yoy to Rs.195cr in 3QFY2014. Further higher depreciation (+17.7% yoy to Rs.56cr) and tax rate (33.4% compared to 32.4% in 3QFY2013) led to a muted net profit growth of 2.9% yoy to Rs.90cr.
 
Other updates: IGL recently slashed prices of CNG in Delhi and Greater Noida by Rs.15/kg after the oil ministry’s move to allocate domestic gas for the entire consumption requirement of city gas distribution (CGD) players; the company slashed prices to pass the benefits to the end users.
 
Outlook and valuation: IGL has recently cut prices after the government directed gas to be allocated to CGD players which is likely to propel demand for CNG going forward. Also, this gives clarity on gas sourcing for IGL. However, the proposal to cap gas marketing margin by Petroleum and Natural Gas Regulatory Board (PNGRB) remains an overhang on the stock. The Supreme Court judgment on this issue is awaited. On the valuation front, at the current level, the stock is trading at 10.3x and 9.6x FY2014E and FY2015E earnings, respectively. We maintain our Neutral rating on the stock due to regulatory overhang.