Indraprastha Gas (IGL) posted robust growth in revenues [44.1% YoY (year-on-year) and 16.4% QoQ (quarter- on-quarter)] backed by record sales and higher realisation in both the CNG and PNG (piped natural gas) segments. Increased realisation was due to the partial impact of a rise in the administered price mechanism gas price on June 8, 2010 (up from $2.7/mmbtu to $4.2/mmbtu). Raw material costs increased 20% QoQ due to the impact of higher volumes of RLNG (regassified LNG) and RIL?s KG-D6 gas. Ebidta, (earnings before interest, taxes, depreciation and amortisation) at Rs 4.8/scm, grew 25.7% YoY as the company managed to pass on the impact of higher gas prices to its customers (CNG retail price rose 25%, to Rs 27.5/kg from June 18, 2010). Overall, the volume growth led to a profit after tax higher than our estimates (Rs 571 m, up 11% QoQ and +18% YoY). CNG volumes, at 142 m kg, grew 17.8% YoY and 4.6% QoQ. Currently, 198 outlets are operational and 43 are awaiting regulatory approval. PNG volumes, at 35.5 mn scm, were higher 103% YoY and 42% QoQ.
IGL?s CNG compression capacity will increase significantly (+22%) as more outlets become operational. We continue to expect CNG annual growth rate of 14%. PNG volumes were higher by 103% YoY and 42% QoQ, due to increase in natural gas supplied to Faridabad and increased offtake by industrial customers in Noida and Greater Noida.
Set to reap full benefits of price hike from Q2FY11: CNG gross realisation, at Rs 22.4/kg, was up 6.6% QoQ, buoyed by the recent hike in prices. Blended realisation of PNG also increased marginally by 3.3% QoQ, to Rs 16.1/scm. Retail price of PNG too has been hiked from July 1, 2010 and the company is set to reap the full benefits of price hike on CNG as well as blended PNG from Q2FY11.
Outlook and valuations: Results were ahead of our expectations, with higher raw material costs being offset by greater realisations and strong growth in volumes. IGL has passed on the price hike to its customers in both the CNG/PNG segments. Outlook on CNG/PNG sales looks robust with an estimated overall volume growth of 22% in FY11E and 17% in FY12E. We are, thus, revising our earnings estimates upwards by 11% in FY11E and 15% in FY12E, respectively. Subsequently, fair value of the stock based on the discounted cash flow methodology is up 26% to Rs 326/share from Rs 257 earlier. We thus, maintain ?Buy/SO? on the stock.