Stock Market Result Update on Indraprasth Gas for 2QFY2012

Stock Market  Result Update on Indraprasth Gas for 2QFY2012 with an Neutral recommendation.

Indraprasth Gas (IGL) reported robust top-line growth of 34.0% yoy in 2QFY2012. However, the company’s EBITDA and PAT grew by only 27.4% yoy and 17.8% yoy on account of higher RLNG and interest costs. We maintain our Neutral view on the stock.

Robust volume growth continues: Net sales growth of 34.0% yoy to `597cr was driven by higher sales and realization. CNG and PNG volumes increased by 14.4% and 62.2% yoy, respectively. Average CNG realisation increased by 8.5% yoy to `29.6/kg. Average PNG realisation increased by 45.5% yoy to `20.4/scm.

OPM contracts: Raw-material costs increased by 40.7% yoy to `358cr, mainly on account of higher RLNG costs. Hence, despite higher growth in net sales, EBITDA grew only by 27.4% yoy to `158cr in 2QFY2012. EBITDA margin slipped by 136bp yoy to 26.4% in 2QFY2012. Further, interest expense stood at `12cr in 2QFY2012 compared to `2cr in 2QFY2011. Consequently, net profit grew by 17.8% yoy to `77cr.

Outlook and valuation: The hike in CNG and PNG prices has reduced concerns on the margin front. However, as the proportion of costly gas is expected to increase, we expect the company’s margins to soften in the years ahead. Nevertheless, robust volume growth will ensure the company’s growth going forward. Currently, we do not see immediate triggers for the stock except for winning the bid outside NCR for city gas distribution. On the valuation front, at the current level, the stock is trading at 15.9x and 14.5x FY2012E and FY2013E earnings, respectively. We remain Neutral on the stock.