Indraprastha Gas Ltd - Moneycontrol

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Indraprastha Gas Ltd

RESULT UPDATE

30th May, 2018

India Equity Institutional Research II

Result Update – Q4FY18

Indraprastha Gas Ltd

II

30th May, 2018

Page 2

Volume momentum continues, long term growth prospects in place

CMP

Target

Potential Upside

Market Cap (INR Mn)

Recommendation

Sector

INR 265

INR 387

45.8%

185,325

BUY

Oil & Gas

Result highlights Indraprastha Gas Ltd. (IGL) reported net sales of INR 12.3 bn (+23.1% YoY, 4.1% QoQ) driven by volumes from both CNG and PNG segment and increased CNG/PNG realizations. Total gas sales volumes were reported at 482 mmscm v/s 433 mmscm in Q4FY17. CNG volumes increased by 10% YoY while PNG volumes increased by 15% QoQ with the highest growth coming from the domestic segment at 22% YoY. Higher realizations for CNG/PNG for the quarter negated the increase in the cost of natural gas to a certain extent leading to an EBITDA of INR 6.05/scm. However, the provision made for trade margins payable to the OMCs amounting to INR 160 mln has been revered in the quarter, after adjusting for which the EBITDA/scm stands at INR 5.71/scm, higher than INR 5.30/scm in Q4FY17. OPM increased by 116 bps YoY to 22.3%. EBITDA stood at INR 2.75 bn (+29.8% YoY, 4.7% QoQ). PAT came in at INR 1.58 bn (+18.4% YoY) from improved operational performance. The board has recommended a final dividend of INR 2 per share. MARKET DATA

KEY FINANCIALS Particulars (INR Mn) Revenue from Operations EBITDA PAT EPS Diluted (INR) OPM (%) NPM (%) P/E (x)

700

Shares outs (Mn)

1400

Equity Cap (INR Mn)

185325

Mkt Cap (INR Mn)

344/203

52 Wk H/L (INR)

2696.7

Volume Avg (3m K) Face Value (INR)

2

Bloomberg Code

IGL IN

FY16 36,858 7,747 4,579 6.54 21.0% 12.4% 40.7

FY17 38,148 9,638 6,063 8.66 25.3% 15.9% 30.8

FY18 45,921 10,973 7,047 10.07 23.9% 15.3% 26.5

FY19E 55,261 14,058 9,282 13.26 22.4% 14.6% 23.1

FY20E 63,371 15,806 10,423 14.89 22.8% 14.9% 19.7

Source: Company, KRChoksey Research

Volume growth momentum continues IGL’s gas sales momentum remained intact as the company witnessed a 11.3% overall increase YoY in the CNG and PNG volumes. CNG sales volume increased by 9.9% YoY to 333 mmscm from increase in private vehicle conversion, while PNG sales volume registered a 15.9% growth YoY to 124 mmscm as a result of higher connections coming in from industrial/commercial segment due to the recent ban on pet coke and furnace oil thus pushing companies to move to using natural gas. We expect the volume growth to remain in this trend with CNG/PNG volumes increasing at a CAGR of 9.8%/19.5% over FY1820E on account of higher conversions due to the recent hike in the alternate fuels as well as increased volumes from Rewari and Karnal district.

SHARE PRICE PERFORMANCE

460 360

Higher EBITDA margin on account of higher realizations 260

The reported EBITDA/scm came in higher at INR 6.05/scm (v/s INR 5.30/scm in Q4FY17) despite increase in the cost of natural gas, primarily due to increased realizations of both CNG and PNG as well as rupee depreciation. A provision made for trade margins payable to the OMCs amounting to INR 160 mln has been revered in the quarter, after adjusting for which the EBITDA/scm stands at INR 5.71/scm. We expect the EBITDA/scm to be ~INR 5.04/5.83 per scm for FY19E/20E as the company has recently announced price hike of CNG by ~3.2% which will bring stability into the operational performance.

160

Indraprastha Gas

May-18

Nov-17

May-17

Nov-16

May-16

May-15

Nov-15

60

Increase in CNG prices

Sensex

The company has stated has hiked the prices of CNG by 3.3% or INR 1.36/kg in Delhi where as for the adjoining areas of Noida, Greater Noida and Ghaziabad, prices have been raised by 3.2%. The increase has been made on account of increase in NG costs and rupee depreciation since the last revision in April and also due to revisions in the proportion of domestic gas allocation for supply as CNG. Additionally, the current CNG prices are already at a discount of 35-40% relative to the other fuels thus giving the company the pricing power to pass on the increase in price to consumers. IGL has however left the prices of PNG unchanged.

MARKET INFO 34906

SENSEX

10614

NIFTY

SHARE HOLDING PATTERN (%) Particulars

Mar 18

Dec 17

Sep 17

Promoters

45

45

45

FIIs

21.31

24.81

25.26

DIIs

16.18

13.63

13.46

Others

17.52

16.56

16.28

100

100

100

Total ANALYST

Dhavan Shah, [email protected], +91-22-6696 5590 Raghav Garg, [email protected], +91-22-6696 5590 Neha Raichura, [email protected], +91-22-6696 5590

17.3% Revenues CAGR between FY 18 and FY 20E KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

20.0% EBITDA between FY 18 and FY 20E +91-22-6696 5555 / +91-22-6691 9576 www.krchoksey.com



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Indraprastha Gas Ltd Encouraging number of CNG conversions The company currently meets fuel requirements of over 1.05 million vehicles running on CNG in NCR through its network of 466 CNG stations. Even after the latest revision of CNG prices and increased petrol and diesel prices, the use of CNG as a fuel for a consumer is expected to result in savings of ~60% and 40% for petrol and diesel, respectively. Expansion plans in progress In order to move in line with the govt’s plans, IGL has carried out robust plans to offer CNG connections by increasing its penetration in the existing areas and entering adjoining areas. IGL has already begun its operations of supplying gas in Rewari district and has also received permission from the Haryana govt to set up its CGD network in the district of Karnal. Valuation & Outlook: IGL remains at an advantageous position on account of the rising concern for pollution in the NCR and Greater Noida region. The recent ban on use furnace oil and pet coke further favours the use of natural gas. The gradual rise in the number of vehicles opting for conversion and the rising number of households for PNG will add to the company’s financial performance. We expect the revenues to grow at a CAGR of 17.3% over FY18-20E and EBITDA to grow at a CAGR of 20% over FY18-20E. At a CMP of INR 265.5, the stock is trading at 20.0x of FY19E and at 17.8x FY20E earnings. We valued the company by assigning a multiple of 26x on the FY20E EPS of INR 14.89 and arrived at target price of INR 387 (potential upside – 45.8%). We maintain BUY rating on the stock. SALES VOLUME PERFORMACE Q3FY17

Q4FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18

Q-o-Q (%)

Y-o-Y (%)

CNG (mln kgs)

231

233

248

257

257

256

-0.4%

10%

PNG (mmscm)

104

107

109

120

126

124

-2%

16%

Q3FY17

Q4FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18

Q-o-Q (%)

Y-o-Y (%)

Sales (INR/scm)

24.7

25.6

26.0

25.9

27.0

28.1

4%

10%

Cost of gas (INR/scm)

12.2

12.8

12.3

12.4

13.9

14.0

1%

10%

EBITDA (INR/scm)

5.8

5.3

6.2

5.9

5.4

5.7

5%

8%


FINANCIALS PER SCM


QUARTERLY PERFORMANCE Particulars (INR Mn)

Q4FY18

Q3FY18

Q4FY17

Revenue from operations

12,329

11,839

10,019

4.1%

23.1%

Cost of natural gas

6,772

6,731

5,536

0.6%

22.3%

-2

-3

-1

-45.5%

157.1%

Cost of goods sold

6,770

6,727

5,535

0.6%

22.3%

Gross Profit

5,559

5,112

4,484

8.8%

24.0%

Gross Margin (%)

45.1%

43.2%

44.8%

191 bps

33 bps

277

274

184

0.9%

50.7%

2,529

2,207

2,179

14.6%

16.1%

Total Expenditure

2,805

2,481

2,362

13.1%

18.8%

EBITDA

2,754

2,631

2,122

4.7%

29.8%

EBITDA Margin (%)

22.3%

22.2%

21.2%

11 bps

116 bps

470

453

244

3.8%

93.0%

Decrease/(Increase) in natural gas stock

Employee benefit expense Other expenses

Depreciation and Amortization Expense EBIT

Q-o-Q (%)

Y-o-Y (%)

2,283

2,177

1,878

4.9%

21.6%

Finance Cost

6

4

12

69.4%

-49.6%

Other Income

267

326

209

-17.9%

28.0%

2,545

2,499

2,075

1.8%

22.6%

957

840

734

14.0%

30.4%

Profit before Tax (PBT) Tax Expense Profit after Tax (PAT)

1,587

1,659

1,341

-4.3%

18.4%

Net Profit Margin (%)

12.9%

14.0%

13.4%

-114 bps

-51 bps

11.34

11.85

9.58

EPS Basic (INR) Source: Company, KRChoksey Research

ANALYST Dhavan Shah, [email protected], +91-22-6696 5590 Raghav Garg, [email protected], +91-22-6696 5590 Neha Raichura, [email protected], +91-22-6696 5590

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

+91-22-6696 5555 / +91-22-6691 9576 www.krchoksey.com



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Indraprastha Gas Ltd GAS VOLUMES Particulars

FY15

FY16

FY17

FY18

FY19E

FY20E

CNG (mmscm)

1,048

1,086

1,199

1,326

1,479

1,617

PNG (mmscm)

330

342

406

479

574

687

Particulars

FY15

FY16

FY17

FY18

FY19E

FY20E

CNG realization (INR/scm)

28.4

28.5

27.4

29.3

30.8

31.9

PNG realization (INR/scm)

32.0

29.4

22.6

24.3

26.6

26.5


GAS REALIZATIONS


INCOME STATEMENT Particulars (INR Million)

FY16

FY17

FY18

FY19E

FY20E

Net Revenue from Operations

36,858

38,148

45,921

55,261

63,371

Purchase of Natural Gas

22,754

20,840

24,918

29,071

33,080

7

-3

-4

0

0

Cost of Goods Sold (COGS)

22,761

20,837

24,914

29,071

33,080

Gross Profit

14,097

17,311

21,007

26,190

30,292

Gross Margin (%)

38.2%

45.4%

45.7%

47.4%

47.8%

784

917

1,061

1,364

1,564

Other expenses

5,566

6,756

8,973

10,768

12,922

Total Operating Expense

6,349

7,673

10,034

12,132

14,486

EBITDA

7,747

9,638

10,973

14,058

15,806

EBITDA Margin (%)

21.0%

25.3%

23.9%

25.4%

24.9%

Depreciation

1,563

1,671

1,813

1,731

1,895

EBIT

6,185

7,967

9,161

12,327

13,911

Finance Cost

99

12

17

17

17

Other Income

242

459

926

974

1,022

6,327

8,414

10,070

13,283

14,916

543

625

719

996

1,119

Profit before Tax (PBT)

6,870

9,039

10,789

14,280

16,034

Total Tax expense

2,291

2,976

3,742

4,998

5,612

Profit after Tax (PAT)

4,579

6,063

7,047

9,282

10,423

PAT Margin (%)

12.4%

15.9%

15.3%

16.8%

16.4%

EPS Basic (INR)

6.54

8.66

10.07

13.26

14.89

Decrease/(Increase) in natural gas stock

Employee benefit expenses

Profit before Tax (PBT) before share of profit of associates & JVs Share of profit of associates & JVs







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Indraprastha Gas Ltd BALANCE SHEET Particulars (INR Million)

FY16

FY17

FY18

FY19E

FY20E

Share capital

1,400

1,400

1,400

1,400

1,400

Reserves and surplus

24,304

28,717

35,070

42,139

50,076

Total Equity

25,704

30,117

36,470

43,539

51,476

-

-

-

-

-

145

203

128

154

177

Other non-current liabilities

1,788

2,024

2,604

2,604

2,604

Total non-current liabilities

1,933

2,227

2,732

2,758

2,781

6,554

9,230

11,363

11,913

12,491

6

7

9

9

9

Other Current liabilities

293

350

391

471

540

Total current liabilities

6,853

9,586

11,763

12,393

13,040

SOURCES OF FUNDS

34,490

41,930

50,965

58,690

67,297

Net Block

20,192

21,172

24,320

27,589

30,195

Capital work-in-progress

2,669

3,518

3,860

3,860

3,860

Investments accounted for using equity method

3,270

3,661

4,264

4,264

4,264

Financial Assets

63

81

87

104

120

Other non-current assets

186

199

607

700

781

Total non-current assets

26,380

28,630

33,139

36,518

39,220

EQUITY AND LIABILITIES Equity

Non-current liabilities Long term borrowings Employee benefit obligations

Current liabilities Financial Liabilities Employee benefit obligations

ASSETS Non-current assets

Current Assets Inventories

576

517

524

606

694

Other Financial Assets

2,685

6,432

11,500

12,421

13,300

Cash and cash equivalents

4,538

6,086

5,580

8,877

13,777

Other current assets

313

266

222

268

307

Total current assets

8,111

13,301

17,826

22,172

28,078

34,490

41,930

50,965

58,690

67,297

APPLICATION OF FUNDS Source: Company, KRChoksey Research






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Indraprastha Gas Ltd CASH FLOW STATEMENT Particulars (INR Million)

FY16

FY17

FY18

FY19E

FY20E

Profit before Tax (PBT)

6,870

9,039

10,789

14,280

16,034

7,807

9,717

13,605

16,028

17,946

8,410

12,163

16,845

15,969

17,980

Less: Income Tax Paid (net of refunds)

-1,875

-2,687

-3,742

-4,998

-5,612

Net Cash generated from/(used in) operating activities

6,535

9,476

13,103

10,972

12,368

Net Cash Used In Investing Activities

-1,746

-11,139

-10,625

-5,445

-4,967

Net Cash Used in Financing Activities

-2,564

-1,613

-1,697

-2,230

-2,502

2,226

-3,277

781

3,297

4,899

2,307

4,533

1,256

2,037

5,334

4,533

1,256

2,037

5,334

10,233

FY16

FY17

FY18

FY19E

FY20E

13.3% 24.1% 17.8%

14.5% 26.5% 20.1%

13.8% 25.1% 19.3%

15.8% 28.3% 21.3%

15.5% 27.0% 20.2%

38.2% 19.1% 12.4%

45.4% 22.8% 15.9%

45.7% 21.6% 15.3%

47.4% 23.1% 16.8%

47.8% 22.7% 16.4%

1.2 1.0 25 6 16 15

1.4 1.3 19 5 26 -2

1.5 1.4 18 4 27 -5

1.8 1.7 18 4 26 -4

2.2 2.0 18 4 26 -4

0.0 62

0.0 658

0.0 542

0.0 729.4

0.0 823.1

23.4 40.6 7.2

18.7 30.7 6.2

16.4 26.4 5.1

12.6 20.0 4.3

10.9 17.8 3.6

Operating profit before working capital changes Cash Generated from (/ used in) operations

Net Increase/( Decrease ) in Cash and Cash Equivalents Cash and Cash Equivalents at the beginning of the year Cash and Cash Equivalents at the end of the year Source: Company, KRChoksey Research

RATIOS Particulars Profitability Return on Assets (%) Return on Capital (%) Return on Equity (%) Margin Trend Gross Margin (%) EBITDA Margin (%) Net Margin (%) Liquidity Current Ratio Quick Ratio Debtor Days Inventory Days Creditor Days Working Capital Days Solvency Total Debt / Equity Interest Coverage Valuation Ratios EV/EBITDA P/E P/B Source: Company, KRChoksey Research






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Indraprastha Gas Ltd Indraprastha Gas Ltd

Rating Legend

Date

CMP (INR)

TP (INR)

Recommendation

30-May-18

265

387

BUY

08-Feb-18

289

400

BUY

10-Nov-17

321

400

BUY

17-Nov-16

840

987

BUY

23-Aug-16

734

890

BUY

16-May-16

568

709

BUY

12-FEB-16

519

662

BUY

09-Nov-15

470

498

ACCUMULATE

06-Aug-15

480

532

ACCUMULATE

01-June-15

406

446

ACCUMULATE

Our Rating

Upside

Buy

More than 15%

Accumulate

5% – 15%

Hold

0 – 5%

Reduce

-5% – 0

Sell

Less than – 5%

ANALYST CERTIFICATION: We, Dhavan Shah [B.Com, MS(Finance)], research analyst, Raghav Garg (B.Com, M.Com (Applied Finance)), research analyst and Neha Raichura (CFA Level III Cleared, M.Com), research associate, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect my views about the subject issuer(s) or securities. I also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & Conditions and other disclosures: KRChoksey Shares and Securities Pvt. Ltd (hereinafter referred to as KRCSSPL) is a registered member of National Stock Exchange of India Limited, Bombay Stock Exchange Limited and MCX Stock Exchange Limited. KRCSSPL is a registered Research Entity vides SEBI Registration No. INH000001295 under SEBI (Research Analyst) Regulations, 2014. We submit that no material disciplinary action has been taken on KRCSSPL and its associates (Group Companies) by any Regulatory Authority impacting Equity Research Analysis activities. KRCSSPL prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analyst covers. The information and opinions in this report have been prepared by KRCSSPL and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of KRCSSPL. While we would endeavor to update the information herein on a reasonable basis, KRCSSPL is not under any obligation to update the information. Also, there may be regulatory, compliance or other reasons that may prevent KRCSSPL from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or KRCSSPL policies, in circumstances where KRCSSPL might be acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. 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Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. Our employees in sales and marketing team, dealers and other professionals may provide oral or written market commentary or trading strategies that reflect opinions that are contrary to the opinions expressed herein, .In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Associates (Group Companies) of KRCSSPL might have received any commission/compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of brokerage services or specific transaction or for products and services other than brokerage services. KRCSSPL or its Associates (Group Companies) have not managed or co-managed public offering of securities for the subject company in the past twelve months KRCSSPL encourages the practice of giving independent opinion in research report preparation by the analyst and thus strives to minimize the conflict in preparation of research report. KRCSSPL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither KRCSSPL nor Research Analysts have any material conflict of interest at the time of publication of this report. It is confirmed that Dhavan Shah [B.Com, MS(Finance)], research analyst, Raghav Garg (B.Com, M.Com (Applied Finance)) and Neha Raichura (CFA Level III Cleared, M.Com), research associate, of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific brokerage service transactions. KRCSSPL or its associates (Group Companies) collectively or its research analyst do not hold any financial interest/beneficial ownership of more than 1% (at the end of the month immediately preceding the date of publication of the research report) in the company covered by Analyst, and has not been engaged in market making activity of the company covered by research analyst. It is confirmed that, Dhavan Shah [B.Com, MS(Finance)], research analyst, Raghav Garg (B.Com, M.Com (Applied Finance)) and Neha Raichura (CFA Level III Cleared, M.Com), do not serve as an officer, director or employee of the companies mentioned in the report. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other Jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject KRCSSPL and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform them of and to observe such restriction.

Please send your feedback to [email protected] Visit us at www.krchoksey.com Kisan Ratilal Choksey Shares and Securities Pvt. Ltd Registered Office: 1102, Stock Exchange Tower, Dalal Street, Fort, Mumbai – 400 001. Phone: +91-22-6633 5000; Fax: +91-22-6633 8060. Corporate Office: ABHISHEK, 5th Floor, Link Road, Andheri (W), Mumbai – 400 053. Phone: +91-22-6696 5555; Fax: +91-22-6691 9576.


