Indraprastha Gas

Indraprastha Gas Ltd – in times of stress and distress go for virtual monopoly players and sleep well !

Indraprastha Gas Limited having a Marketcap of Rs.5770 crores is in the retail gas distribution business of supplying compressed natural gas (CNG) to transport sector, piped natural gas (PNG) to domestic, industrial and commercial sectors in Delhi and NCR. The Company is a joint venture between GAIL India Limited and Bharat Petroleum Corporation Limited.

Over the past one decade, Indraprastha Gas (IGL) has reported a CNG volume CAGR of 46% led by 1) mandatory conversion of all public transport vehicles to CNG, 2) growing conversion of private vehicles, 3) increased number of stations and higher compressing capacity at stations and 4) improving availability of fuel across the NCR region. While demand from mandatory conversions might not witness substantial growth, momentum in private vehicle conversions would continue on the back of increasing cost advantage of CNG as an auto fuel.

Aspects that will drive the stock price higher and higher in the years to come :

IGL currently supplies PNG to about 0.17mn households compared to total of 4.3mn households using LPG. Rising awareness about advantages of PNG over LPG (safety and convenience) the acceptance of the fuel will increase at a robust pace. PNG thus has tremendous potential.

Being cost effective, industrial segment has accounted for significant portion of IGL's PNG sales. PNG has a wide acceptance for co-generation and in this respect, Delhi has been under considerably under-penetrated. Thus, sale of PNG to industries holds good potential.

IGL is extending its reach beyond Delhi to tap markets of Noida, Greater Noida and Ghaziabad. Such humble geographical expansion coupled with superior pricing power will result in strong topline growth in the years to come.

Expect volumes to grow around 25 pc in FY12 and FY13 and IGL will in all probability expand its capacity by more than 50 pc in the next 3 years on improved cost attractiveness of CNG/PNG over competing liquid fuels.

Total Revenues in FY2010-11 were Rs.1750 crores and PAT was Rs.259 crores. In Q1FY12, revenues were up 60.2 pc at Rs.537 crores compared to Rs.335 crores in Q1FY11. Net Profits increased by around 40 pc in Q1FY12 at Rs.80 crores compared to Rs.57 crores in Q1FY11. Net profit margins hover around 13 to 21 pc.

IGL which has strong return ratios – its ROE is around 28 pc and ROCE around 34 pc. IGL is a low leveraged company that has managed its finances extremely well if we consider that it does annual revenues of Rs.1750 crores without diluting its Equity which stands constant at Rs.140 crores since last 5 years.

Indraprastha Gas Limited – indeed a virtual monopoly that is destined to go places and such stocks can rarely be available at deep discounts unless we get to see some major banks going bust in our country and pray this never happens!