For the first quarter of 2018, the profit after tax (PAT) stood at Rs 161.3 crore, jumping nine per cent YoY characterised by strong all‐round performance. IGL is commissioning its operations in Gurugram. The company has recently won license to operate in 25 per cent of the region.

Robust volumes

IGL has logged healthy volumes at 4.8mmscmd, surged by 13 per cent year over year for the quarter. Volumes for the CNG were 3.6mmscmd, with strong growth of 12 per cent led by higher conversions at 2,800 per month. On the other hand, volumes for PNG stood at 1.2mmscmd with growth of 17 per cent YoY.

Across the joint ventures, MNGL has witnessed robust 18 per cent YoY volume growth, whereas CUGL saw 7 per cent YoY growth in volumes. Residential PNG slowed to 7 per cent YoY as new buildings in Noida and Greater Noida came up. Industrial or commercial grew 13 per cent and natural gas, Haryana 33 per cent.

The prospects for volume growth remain positive with 10 per cent CAGR over the expected 2017-2020 period, driven by addition of buses, higher conversion of cars and foray into high‐potential Gurugram and Rewari markets.

Healthy EBITDA margin

The EBITDA margin spiked to Rs 6.3 per scm, jumping 15 per cent on quarter over quarter. The stellar EBITDA margin will remain steady at Rs 5.8 per scm. The estimates of earnings per shares for 2018 and 2019 are raised by four per cent each, post factoring in the higher margins.

One of the main risks for IGL is that its margins would be impacted as it faces difficulty in passing on higher prices of gas sourced from Regasified Liquefied Natural Gas (RLNG). Additionally, the company will find it difficult to sustain its margins as the rupee devaluates and APM prices increase in the subsequent rounds of price adjustments.

Conversions

During the quarter, CNG conversions improved 40 per cent quarter over quarter owing to partial removal of ban on discounted spurious CNG kits. Presently, the conversions are still 30 per cent below the peak levels.

Associates improve performance; new areas to boost volumes

IGL owns 50 per cent stake in Central UP Gas (CUGL) and Maharashtra Natural Gas (MNGL) posted better performance with PAT of Rs 36 crore, which is three times on quarter over quarter basis.

In Rewari, which has 0.5mmscmd potential, IGL has opened two CNG stations with four more stations and 1,500 PNG households on the anvil in the current financial year, 2018.

For the 2017-19 period, earnings per share and free cash flow CAGR is estimated to be 17 per cent and 14 per cent, respectively, with robust return on equity (RoE) of more than 20 per cent. At the current market price of Rs 1,216, IGL is pricing in inadequate earnings per share CAGR of 10 per cent over 15 years.

Investment premise

The CNG volume growth of IGL will be aided by the aggressive plans of Delhi Integrated Multi‐Modal Transit (DIMTS) to add buses and the initiative taken by Delhi government to introduce new blue‐line buses, which is meant to facilitate last mile connectivity for Delhi Metro.

The PNG business of IGL represents a long-term opportunity with low penetration of approximately 10 per cent in the domestic segment which will boost IGL sales as it expands itself geographically in Greater Noida, Ghaziabad, Sonepat, and Panipat. In addition to this, the overhang of regulation of compression or network tariffs has disappeared.

IGL had acquired 50 per cent stake in Maharashtra Natural Gas (MNGL); this acquisition will grant the company entry into Pune with good growth potential.

Key Risks

The domestic city gas is rendered as the top priority in allocation of inexpensive domestic gas. Profitability of IGL will be immensely impacted by the reduction in domestic city gas allocation or allocation of the more expensive domestic gas.

The APM production is expected to be stagnant or most likely decline as the old fields reach maturity. Going forward, increase in domestic production will be led by output from difficult fields and from blocks awarded in subsequent auctions which will command market pricing.

neha.seth@outlookindia.com