IGL reported a 27.7% yoy increase in bottom-line to Rs51.5cr (Rs40.3cr) in
4QFY2010, lower than our expectation of Rs61.0cr, because of lower gross
gas margin and subdued CNG volume growth on a qoq basis. On account of
healthy top-line growth of 26.8% yoy and payment of overdrawl charges on
excess drawl of gas in 4QFY2009, OPM expanded by 75bp yoy to 32.6%
(31.8%) in 4QFY2010. We continue to harbour concerns on sustainability of
the company's high-margin business model, especially considering that
margins were fueled by lower gas costs (subsidised gas). We recommend a
Reduce rating on the stock.
Volume growth continues: CNG volume increased 12.1% yoy to 1.98mmscmd
(1.76mmscmd), which was below our expectation of 2.04mmscmd. Overall,
total volumes increased by 16.5% yoy to 2.20mmscmd (1.93mmscmd), lower
than our expectation of 2.24mmscmd. Due to healthy revenue growth and
OPM expansion, EBITDA grew by 29.8% yoy to Rs94.4cr (Rs72.7cr).
Depreciation during 4QFY2010 increased 12.6% yoy to Rs19.8cr (Rs17.6cr)
but was flat on a qoq basis. Other income dipped 53.7% yoy to Rs3.6cr
(Rs5.7cr) on account of deployment of surplus funds. Bottom-line grew by
27.7% yoy to Rs51.5cr (Rs40.3cr), below our expectation of Rs61cr, mainly on
account of higher gas cost.
Outlook and Valuation: Given the fact that high margins for the company
were largely a function of subsidised gas prices, we believe passing through
complete price hike will be difficult. We model an increase of Rs2.1/kg in
CNG prices (50% of the required price hike of Rs4.2/kg). Thus, we have
downgraded our earnings estimates for FY2011E and FY2012E on account of
the recent increase in the APM gas price. At the CMP of Rs229, the stock is
available at relatively expensive valuations of 15.8x FY2012E EPS and 3.1x
FY2012E P/BV. We recommend a Reduce view on the stock (Sell earlier), with
a revised Target Price of Rs210.
IGL
Operating revenue marginally below expectation: For 4QFY2010, IGL reported a
26.8% yoy increase in operating income to Rs290cr (Rs228cr), which was marginally
below our expectation of Rs294cr. CNG volumes increased 12.1% yoy to
1.98mmscmd (1.76mmscmd), below our expectation of 2.04mmscmd. Whereas,
PNG volumes increased 62.3% yoy to 0.28mmscmd (0.17mmscmd) and were much
above our expectation of 0.19mmscmd due to clubbing of the sales to Adani under
the PNG segment during the quarter. Total volume increased by 16.5% yoy to
2.20mmscmd (1.93mmscmd), which was below our expectation of 2.24mmscmd,
due to lower-than-expected CNG volumes. Average gross CNG realisations were
higher on a yoy basis at Rs21/kg (Rs18.7/kg) due to the price hike effected on June
16, 2009, whereas average PNG realisations took a substantial dip on a yoy basis
during the quarter to Rs15.6/scm (Rs19.5/scm) due to clubbing of lower margin
sales to Adani under the PNG segment.
OPM expands by 75bp yoy to 32.6%: Gas sourcing cost increased 19.5% yoy to
Rs138cr (Rs116cr), which was above our expectation of Rs131cr. Gas cost per scm
came in at Rs6.8/scm (Rs6.6/scm) as against our expectation of Rs6.4/scm. Gross
gas spread during the quarter on a yoy basis stood higher at Rs7.5/scm
(Rs6.5/scm), but was lower than our expectation of Rs7.9/scm. On account of higher
gas cost per scm, gross gas spread also stood lower on a qoq basis at Rs7.5/scm
(Rs7.9/scm). Staff cost increased 49.1% yoy to Rs9.6cr (Rs6.5cr) owing to increased
minimum wage, whereas other operating expenditure increased 41.4% yoy to
Rs47.5cr (Rs33.6cr). OPM during the quarter expanded by 75bp yoy to 32.6%
(31.8%); however, it was lower than our expectation of 36.6%. On account of
healthy revenue growth and OPM expansion, operating profit grew by 29.8% yoy to
Rs94.4cr (Rs72.7cr). However, the same declined by 10.2% on a qoq basis due to
lower CNG volumes and increased gas cost.
Depreciation flat qoq; other income dips: Depreciation during 4QFY2010 increased
12.6% yoy to Rs19.8cr (Rs17.6cr), but was flat on a qoq basis. Other income dipped
53.7% yoy to Rs3.6cr (Rs5.7cr) on account of deployment of surplus funds.
PAT up 27.7% yoy, but below our expectation: Higher revenue growth and OPM
expansion resulted in bottom-line growing 27.7% yoy to Rs51.5cr (Rs40.3cr), which
was below our expectation of Rs61cr, mainly on account of higher gas cost and
lower-than-anticipated CNG sales volumes.
Segment-wise performance
Robust growth continues in CNG and PNG volumes: On a sequential basis, IGL's
CNG volumes declined marginally by 0.3% to 1.98mmscmd (1.94mmscmd), but
were higher on a yoy basis, primarily on the back of growth in CNG vehicle
conversions. However, PNG volumes registered robust growth of 53.4% sequentially
to 0.28mmscmd (0.18mmscmd) on account of clubbing of sales to Adani under the
PNG segment from the current quarter. PNG volumes were also higher on a yoy
basis by robust 62.3% yoy
.
