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4QFY2010 Result Update I Oil & Gas-IGL PERFORMANCE HIGHLIGHTS


IGL reported a 27.7% yoy increase in bottom-line to Rs51.5cr (Rs40.3cr) in

4QFY2010, lower than our expectation of Rs61.0cr, because of lower gross

gas margin and subdued CNG volume growth on a qoq basis. On account of

healthy top-line growth of 26.8% yoy and payment of overdrawl charges on

excess drawl of gas in 4QFY2009, OPM expanded by 75bp yoy to 32.6%

(31.8%) in 4QFY2010. We continue to harbour concerns on sustainability of

the company's high-margin business model, especially considering that

margins were fueled by lower gas costs (subsidised gas). We recommend a

Reduce rating on the stock.

Volume growth continues: CNG volume increased 12.1% yoy to 1.98mmscmd

(1.76mmscmd), which was below our expectation of 2.04mmscmd. Overall,

total volumes increased by 16.5% yoy to 2.20mmscmd (1.93mmscmd), lower

than our expectation of 2.24mmscmd. Due to healthy revenue growth and

OPM expansion, EBITDA grew by 29.8% yoy to Rs94.4cr (Rs72.7cr).

Depreciation during 4QFY2010 increased 12.6% yoy to Rs19.8cr (Rs17.6cr)

but was flat on a qoq basis. Other income dipped 53.7% yoy to Rs3.6cr

(Rs5.7cr) on account of deployment of surplus funds. Bottom-line grew by

27.7% yoy to Rs51.5cr (Rs40.3cr), below our expectation of Rs61cr, mainly on

account of higher gas cost.

Outlook and Valuation: Given the fact that high margins for the company

were largely a function of subsidised gas prices, we believe passing through

complete price hike will be difficult. We model an increase of Rs2.1/kg in

CNG prices (50% of the required price hike of Rs4.2/kg). Thus, we have

downgraded our earnings estimates for FY2011E and FY2012E on account of

the recent increase in the APM gas price. At the CMP of Rs229, the stock is

available at relatively expensive valuations of 15.8x FY2012E EPS and 3.1x

FY2012E P/BV. We recommend a Reduce view on the stock (Sell earlier), with

a revised Target Price of Rs210.

IGL

Operating revenue marginally below expectation: For 4QFY2010, IGL reported a

26.8% yoy increase in operating income to Rs290cr (Rs228cr), which was marginally

below our expectation of Rs294cr. CNG volumes increased 12.1% yoy to

1.98mmscmd (1.76mmscmd), below our expectation of 2.04mmscmd. Whereas,

PNG volumes increased 62.3% yoy to 0.28mmscmd (0.17mmscmd) and were much

above our expectation of 0.19mmscmd due to clubbing of the sales to Adani under

the PNG segment during the quarter. Total volume increased by 16.5% yoy to

2.20mmscmd (1.93mmscmd), which was below our expectation of 2.24mmscmd,

due to lower-than-expected CNG volumes. Average gross CNG realisations were

higher on a yoy basis at Rs21/kg (Rs18.7/kg) due to the price hike effected on June

16, 2009, whereas average PNG realisations took a substantial dip on a yoy basis

during the quarter to Rs15.6/scm (Rs19.5/scm) due to clubbing of lower margin

sales to Adani under the PNG segment.

OPM expands by 75bp yoy to 32.6%: Gas sourcing cost increased 19.5% yoy to

Rs138cr (Rs116cr), which was above our expectation of Rs131cr. Gas cost per scm

came in at Rs6.8/scm (Rs6.6/scm) as against our expectation of Rs6.4/scm. Gross

gas spread during the quarter on a yoy basis stood higher at Rs7.5/scm

(Rs6.5/scm), but was lower than our expectation of Rs7.9/scm. On account of higher

gas cost per scm, gross gas spread also stood lower on a qoq basis at Rs7.5/scm

(Rs7.9/scm). Staff cost increased 49.1% yoy to Rs9.6cr (Rs6.5cr) owing to increased

minimum wage, whereas other operating expenditure increased 41.4% yoy to

Rs47.5cr (Rs33.6cr). OPM during the quarter expanded by 75bp yoy to 32.6%

(31.8%); however, it was lower than our expectation of 36.6%. On account of

healthy revenue growth and OPM expansion, operating profit grew by 29.8% yoy to

Rs94.4cr (Rs72.7cr). However, the same declined by 10.2% on a qoq basis due to

lower CNG volumes and increased gas cost.

 

Depreciation flat qoq; other income dips: Depreciation during 4QFY2010 increased

12.6% yoy to Rs19.8cr (Rs17.6cr), but was flat on a qoq basis. Other income dipped

53.7% yoy to Rs3.6cr (Rs5.7cr) on account of deployment of surplus funds.

PAT up 27.7% yoy, but below our expectation: Higher revenue growth and OPM

expansion resulted in bottom-line growing 27.7% yoy to Rs51.5cr (Rs40.3cr), which

was below our expectation of Rs61cr, mainly on account of higher gas cost and

lower-than-anticipated CNG sales volumes.

Segment-wise performance

Robust growth continues in CNG and PNG volumes: On a sequential basis, IGL's

CNG volumes declined marginally by 0.3% to 1.98mmscmd (1.94mmscmd), but

were higher on a yoy basis, primarily on the back of growth in CNG vehicle

conversions. However, PNG volumes registered robust growth of 53.4% sequentially

to 0.28mmscmd (0.18mmscmd) on account of clubbing of sales to Adani under the

PNG segment from the current quarter. PNG volumes were also higher on a yoy

basis by robust 62.3% yoy

.