Indraprastha Gas Ltd – Hold

Q3FY11 Result Highlights

_ Indraprastha Gas Ltd’ (IGL) Q3FY11 topline was slightly below our estimates, while PAT was 9% above our estimates.

_ Top‐line registered a YoY growth of 59.7% to INR 4,571 m on account of higher CNG volumes.

_ CNG volumes increased 13.7% on an annual basis to 155m/kg while PNG volumes grew by a robust 92.4% YoY to 43.3mmscm against 22.5mmscm in Q3FY10.

_ Average realisations on CNG increased ~31% on a YoY basis at INR 27.4/kg compared to INR 20.9/kg last year on the back of CNG price hikes undertaken during the quarter. Average realisations on PNG also increased ~21% to INR 19.4/scm due to price hikes during thequarter.

_ EBITDA increased 23% on a YoY basis and 3.6% on a sequential basis. EBITDA margins decreased by 843 basis points on an annual basis largely due to a sharp increase in gas cost.

_ Net profit increased 14% to INR 672

Outlook & Valuation

At the current market price of INR 335, the stock trades at FY12e EV/EBITDA of 8x. We feel the stock is fairly priced at this juncture and advise investors to hold the stock with a target price of INR 350.



Outlook & Valuation
_ IGL may undertake another price hike of INR 8 per kg this year, as the company is forced to buy expensive imported liquefied natural gas (LNG)in the absence of allocation from domestic fields.

_ The company expects to achieve a volume growth of 25% in FY11. IGL is also targeting a CAGR volume growth of 25% over the next five years.

_ The company also has strong pricing power as gas prices are still more than 60% and 20% more economical than petrol and diesel respectively.

_ Management expects to achieve revenues of INR 17.5 bn in FY11and INR 2.5bn in FY12.

_ At the current market price of INR 335, the stock trades at FY12e EV/EBITDA of 8x. We feel the stock is fairly priced at this juncture and advise investors to hold the stock with a target price of INR 350.

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