Indraprastha Gas (IGL) Q3 earnings were in line with our estimate as disappointment on margin was offset by better volume growth.
We believe both margin and volume growth has peaked for IGL. EBITDA margin has come off over the last 2 quarters despite benign domestic gas price – we expect gas price to rise from H2FY18 .
Volume growth of 10%+ in 9MFY17 may also moderate going forward given slower pump addition, start of Delhi Metro Phase 3 and reasonably high CNG penetration. IGL’s Q3 EBITDA and net profit were in line with our estimate. CNG volume growth of 11% surprised positively vs our estimate of 7% as demonetisation impact was lower.
However, EBITDA margin of R5.7/scm disappointed vs estimate of R6.2/scm despite a domestic gas price cut in beginning of October. Performance of the associates (CUGL and MNGL) remained strong as the two contributed R180 million (R1.3/share) to consolidated net profits in the quarter.
We note that after peaking at R6.5/scm in 1Q, IGL’s margins have come off over the last two quarters despite benign domestic gas prices.
Based on the global indices on which it is based, we expect domestic gas price to remain flat in the upcoming revision on April 1 but rise sharply in the next revision on October 1. As a result, we expect FY18/19E EBITDA margins to be slightly below FY17E level.