Indraprastha Gas' Q3FY19 results (Outperformer) - Strong volume growth continues
Q3FY19 result highlights
- Indraprastha Gas (IGL) EBITDA/PAT of Rs3.2bn/Rs2bn, grew 20.8%/19.3% yoy respectively, in line, with strong volume growth of 12.2% yoy to 5.9 mmscmd (IDFCe 5.8 mmscmd).
- IGL’s reported gross margins of Rs11.1/scm was marginally below IDFCe of Rs11.2/scm, however EBITDA of Rs5.9/scm was lower than estimates of Rs6.2/scm due to higher staff cost of Rs347mn vs est Rs305mn.
- CNG/PNG volume growth at 13.2/9.5% yoy to 291 mn kg/138 mmscm. Within PNG, domestic PNG grew 10.7% while commercial volumes grew by 13% yoy. Natural gas sales volumes remained steady at 46 mmscm (4.5% yoy).
- Share of profit from MNGL/CUGL at Rs270mn +58.8% yoy, translating to Rs0.4/share. FY18 contribution of MNGL & CUGL was at Rs0.8/sh to IGL.
Key positives: Robust volume growth
Key negatives: Higher staff cost
Impact on financials: We marginally cut our FY19/20E EPS by 2% each to factor in higher staff cost. TP revised to Rs350/sh. Also introduce FY21E with EPS of Rs14.4/sh.
Valuation & View
IGL’s strong performance over 9MFY19 (EBITDA/PAT +12%/13% yoy) is indicative of the resilience of the business model even in face of concerns around increasing penetration in existing areas and a slowdown in regulatory support over the last 12Mths. We believe that volume growth even in existing areas has enough potential. Penetration while being higher than that of peers is still not high enough to preclude probability of double digit growth over the next 3-4 years while regulatory actions on petcoke/FO ban in and around NCR has not played out completely. Additionally the Gurgaon CGD transfer, even though delayed will eventually play out and add 0.5-0.7 mmscmd of incremental volumes by FY22E while also improving margins for the 0.3mmscmd currently sold to Haryana City Gas (it earns only Rs2/scm fixed charge currently vs Rs5.8-5.9/scm EBITDA earned overall by IGL). An EPS CAGR of 14.6% over FY18-21E, RoE/RoCE of 20%/25% merits a much stronger multiple than current 21x/11x FY21E EPS/EBITDA - Reiterate outperformer
Indraprastha Gas Limited (IGL) is an India-based city gas distribution company. The Company's business consists of sale of natural gas. The Company is focused on industrial and commercial business. The Company supplies compressed natural gas (CNG) to the transport sector and piped natural gas (PNG) to the domestic, industrial and commercial sectors in Delhi and the National Capital Region (NCR). The Company offers PNG, which includes methane-CH4, as well as other hydrocarbons. The Company offers CNG, a gaseous fuel that includes a mixture of hydrocarbons, primarily methane. The Company has approximately 340 CNG stations spread all around the National Capital Territory of Delhi and in NCR. The Company provides PNG connections to over 6.36 lakhs domestic households, and approximately 2,630 commercial and industrial customers.
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