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1January 30, 2008 For Private Circulation Only - Sebi Registration No : INB 010996539December 26, 2008 For Private Circulation Only - Sebi Registration No : INB 010996539 1

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Jain Irrigation

Initiating Coverage

Indraprastha GasCompany Update

Peaking outIGL has underperformed the benchmark indices as well as the Oil & Gas Index over the last2-3 years by a substantial margin. We believe the scenario continues to be bleak for IGLowing to headwinds such as higher capital expenditure and expected Margin compressionimpacting Earnings and Return Ratios going ahead. Regulatory risks and muted Earningsgrowth prospects thereof are expected to prevent re-rating of the stock in the visible future.We have used DCF methodology to value IGL and have arrived at a Fair Price of Rs105.DCF is more appropriate to evaluate the company given the expected Margin contractiongoing forward. However, on account of the meltdown in the global markets and deterioratingfundamentals, we believe all positives are factored in the stock price. Hence, we remainNeutral on the stock.

Regulations to rein in excessive Margins: IGL has been registering high EBITDAMargins in excess of 40% and RoCE ranging from 38 - 45%. However, the period ofunregulated Margins is about to cease with the PNGRB guidelines ushering in regulationsto limit Network and Compression tariffs with Marketing Margins being left out presuming itwill be self-regulated due to competitive forces. Further, IGL’s Marketing exclusivity is alsolikely to end post FY2011. Thereon, a level playing field for all players who would see IGLsourcing gas at higher prices leading to squeeze in it’s Marketing Margins.

Unjustified Returns for low-risk business model: On account of earningsuper-normal Returns - generated Returns of more than 42% on core assets in FY2008 -IGL has fully recovered its investments. IGL’s returns exceed the risk-return trade offinvolved in the city gas distribution (CGD) business. However, we believe such super-normalreturns would temper due to increase in gas costs, competition or regulatory interference.

APM gas price hike imminent: IGL gets 2mmscmd of APM gas (1.9mmscmd forCNG and 0.1 mmscmd for PNG) for its operations in NCT of Delhi, which helps it post robustperformance. However, going ahead, declining APM gas production and exhaustion ofcurrent supply allocation would increase gas prices. The supply contract with GAIL is alsodue for renewal towards end CY2010, which could also increase gas costs for IGL.

Shareholding Pattern (%)

Promoters 45.0

MF / Banks / Indian FIs 24.7

FII / NRIs / OCBs 20.2

Indian Public / Others 10.1

BSE Code 532514

NSE Code IGL

Reuters Code IGAS.BO

Bloomberg Code IGL@IN

BSE Sensex 9,329

Nifty 2,857

Abs. 3 m 1yr 3yr

Sensex (%) (28.8) (53.8) 2.7

IGL (%) (12.9) (36.2) (22.0)

Stock Info

Sector Gas

Market Cap (Rs cr) 1,414

Beta 0.4

52 Week High / Low 183/92

Avg Daily Volume 95173

Face Value (Rs) 10

NEUTRALPrice Rs101

Target Price -

Investment Period -

Amit Vora

Tel: 022 - 4040 3800 Ext: 322

E-mail: [email protected]

Deepak Pareek

Tel: 022 - 4040 3800 Ext: 340

E-mail: [email protected]

Key Financials

Source: Company, Angel Research

Y/E March (Rs cr) FY2007 FY2008 FY2009E FY2010E

Net Sales 614.1 706.0 844.1 939.5

% chg 17.9 15.0 19.6 11.3

Net Profits 138.0 174.5 202.5 204.6

% chg 30.0 26.5 16.1 1.1

OPM (%) 41.6 42.5 41.9 40.8

EPS (Rs) 9.9 12.5 14.5 14.6

P/E (x) 10.2 8.1 7.0 6.9

P/BV (x) 3.0 2.5 2.0 1.7

RoE (%) 29.5 30.3 28.8 24.8

RoCE (%) 41.8 41.2 40.1 34.6

EV/Sales (x) 2.2 1.8 1.5 1.4

EV/EBITDA (x) 5.4 4.2 3.6 3.3


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Indraprastha Gas

Gas

Company Background

IGL is in the retail gas distribution business supplying compressed natural gas (CNG) to theTransport sector and piped natural gas (PNG) to domestic and commercial sectors in theNational Capital Territory (NCT) region of Delhi. IGL was incorporated in December 1998 as ajoint venture (JV) between two oil & gas majors - GAIL and BPCL (each holding 22.5% stake)and government of NCT of Delhi (5% stake) to implement the city gas distribution (CGD) projectin NCT. IGL has 166 fuel stations in Delhi and NCR. It plans to add 50 more stations before theCommonwealth Games. It has a CNG compression capacity of 2.19mn kg per day and fuelsmore than 2,25,000 vehicles (as on March 31, 2008) daily. IGL plans to increase itscompression capacity to over 2.80mn kg per day (addition of 28% over the current level). In thePNG segment, IGL has provided PNG connections to over 1,22,000 domestic and 300commercial customers. It has also been supplying re-gasified liquid natural gas (R-LNG) to 16industrial consumers. Going forward, IGL plans to add around 50,000 PNG customers everyyear. IGL is now expanding its network into NCR cities of Noida, Greater Noida, Ghaziabad,Sonipat and Panipat.


1997 GAIL started the Delhi City Gas Distribution Project - a CNG pilot project toestablish viability of the venture and resolve related technical and safety issues.

1998 IGL was incorporated on December 23, 1998 under the Ccompanies Act, 1956.

1999 IGL commenced operations in February 1999 by taking over and executing theDelhi CGD Project in Delhi from GAIL.

2000 Supreme Court directive to convert the entire city bus fleet (DTC and private) to CNGby March 31, 2001; replacement of all pre-1990 autos and taxis with new vehicleson clean fuels, etc.

2000 Entered into long-term supply contract with GAIL for supply of 0.48 mmscmd APMnatural gas

2001 MoPNG increased APM gas allocation to 0.98 mmscmd.

2002 MoPNG increased APM gas allocation to 2.0 mmscmd to meet IGL's requirementfor NCT of Delhi.

2003 Successful completion of IPO at Rs48/share.

2004 Marked foray into NCR by setting up 2 CNG stations in Noida in December 2004.

2004-05 Secured 0.70mmscmd APM gas from MoPNG for expanding its gas distributionnetwork in Noida including Greater Noida, Gurgaon and Faridabad.

2005-06 IGL formalised its agreement with GAIL for supply of 2mmscmd; entered intoagreement with BPCL for supply of RLNG on long-term basis.

2008-09 IGL requests for additional 1.0 mmscmd APM gas to meet increasing demand.Planned addition of 50 more CNG stations over next 2 years from 166 stations.

Exhibit 1: IGL - Over the years


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Indraprastha Gas

Gas

Business Model

IGL as a CGD player is primarily engaged in the business of distribution of CNG (90% of NetSales). IGL's CNG users can be classified into mandatory and discretionary users. Themandatory users (compulsory users as mandated by law) include DTC and private buses, RTVsand Autos. Discretionary users of CNG include private cars, which use CNG due to the lowrunning cost. While initial phase of conversion was driven by mandatory sources, currentconversions are driven by discretionary users.


Exhibit 2: Sales break-up over the years

91.5% 90.2% 89.2% 89.4% 89.2% 88.7%

8.5% 9.8% 10.8% 10.6% 10.8% 11.3%

0

10

20

30

40

50

60

70

80

90

100

FY2006 FY2007 FY2008 FY2009E FY2010E FY2011E

PNG Sales (% of Total) CNG Sales (% of Total)

(%)

Selling prices in both the segments are currently determined vis-à-vis the relative prices ofalternative fuels. CNG is priced at a discount to petrol and diesel prices. While in the PNGsegment, domestic users are priced at a discount to domestic LPG prices, industrial users arepriced at a discount to Naphtha prices.

On the gas sourcing front, which is an important aspect of the CGD business, IGL has a supplyagreement with GAIL. GAIL is the sole supplier of APM natural gas to the company. IGL hassigned a Gas Purchase Agreement for 2.0 mmscmd (1.9 mmscmd for CNG and 0.1 mmscmdfor PNG) with GAIL, which is valid till CY2010 and extendable on mutually agreed terms. It hasbeen further allocated 0.7 mmscmd of natural gas by the Ministry of Petroleum and Natural Gas(MoPNG) to expand in NCR cities. Gas is received at various points of the Hazira-Bijaipur-Jagdishpur (HBJ) pipeline around Delhi. As the gas cost is denominated in Rupee terms, IGL isinsulated from exchange risks. The gas is currently available at subsidised prices (APM prices).However, as per the gas pricing order 2006, APM prices are to be revised upwards by 20% p.afor four years to align it with market determined prices. The first tranche of 20% has beenimplemented, while the second tranche is overdue.

IGL's Pricing strategy in CNG and PNG segment

IGL currently prices its products at a discount to alternative fuels in both the CNG and PNGsegments. In the CNG segment, IGL has priced its gas at a discount to petrol and diesel prices.Currently, CNG is priced at 69.5% discount to petrol and 52.7% to diesel.

Initial phase of conversionwas driven by mandatorysources, current conversionsdriven by discretionary users

CNG and PNG selling price iscurrently determined vis-à-visrelative prices of alternativefuels

Currently CNG is priced at69.5% discount to Petrol and52.7% to Diesel prices.

As per the gas pricing order2006, APM prices are to berevised upwards by 20% forfour years to align it withmarket determined prices


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Indraprastha Gas

Gas


Particulars FY03 FY04 FY05 FY06 FY07 FY08 CurrentPetrol prices (Rs/lit) 29.0 32.0 36.5 41.1 45.4 43.7 45.6

CNG prices (Rs/kg) 16.9 16.9 16.9 17.7 19.0 19.2 18.9

Equivalent petrol prices (Rs/kg) 39.3 43.4 49.5 55.8 61.5 59.2 61.9

Savings (Rs/kg) 22.5 26.6 32.6 38.0 42.6 40.0 43.0

Savings over Petrol (%) 57.1 61.1 65.9 68.2 69.2 67.6 69.5

Exhibit 3: Petrol Relative discount to CNG


Particulars FY03 FY04 FY05 FY06 FY07 FY08 CurrentDiesel prices (Rs/lit) 18.6 20.3 23.9 29.5 31.5 30.6 32.9

CNG (Rs/kg) 16.9 16.9 16.9 17.7 19.0 19.2 18.9

Equivalent diesel prices (Rs/kg) 22.6 24.7 29.0 35.9 38.3 37.2 40.0

Savings (Rs/kg) 5.7 7.8 12.1 18.2 19.3 18.0 21.1Savings over Diesel (%) 25.2 31.6 41.8 50.6 50.4 48.5 52.7

Exhibit 4: Diesel Relative discount to CNG


Exhibit 5: PNG economics for domestic consumersCost of Domestic LPG (14.2kg cylinder, Rs) 346Rs/kg 24.4Calorific value of LPG (Kcal) 11,007Price for Rs/10,000Kcal 22.2Cost of PNG (Rs/scm) 13.4Calorific value of PNG sold (Kcal) 8,300Price for Rs/10,000Kcal 16.1Price advantage over LPG (Rs) 6.0Advantage (%) 27.2

Similarly, in the domestic PNG segment the price is indexed to the administered retail sellingprice of domestic LPG (14.2 kg) cylinder in the NCT, as applicable from time to time, taking intoaccount the respective heating values of natural gas and LPG. In the small commercial userssegment, PNG is indexed to commercial LPG (19 kg) cylinder in the NCT of Delhi, as applicablefrom time to time, taking into account the respective heating values of natural gas and LPG.Large commercial users (big hotels, etc) are the PNG users replacing LDO and commercialLPG. Thus, price in the segment is indexed to weighted average price of LDO and commercialLPG in the NCT taking into account the respective heating values of natural gas, LPG and LDO.


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Indraprastha Gas

Gas


Exhibit 6: Analysis of pay back period of CNG kit Assumed daily travel (km) 42 Yearly travel (assuming 280 days of travel, km) 11,760 Mileage of the car (km/litre) 12 Savings per litre (Rs) 43 Savings per km (Rs) 3.6 Total Savings in a year (Rs) 42,128 Cost of kit (Rs) 40,000 Payback period (months) 11.4

Opportunity in different segments

CNG

There exists huge opportunity CNG segment. Private cars are expected to be the major growthdriver with regulatory conversions behind us. In the NCT and NCR regions combined, there areapproximately 2.0mn cars. Assuming 50% of these cars are in the NCT regions, the targetmarket would comprise 1.0mn cars. Management has stated that only petrol cars can beexpected to convert to CNG. Thus, assuming 75% of the total cars use petrol as the fuel, thetarget market would have 0.75mn cars. Assuming 90% of these cars are small and mid sizecars, the effective target market would have .675mn cars. We believe superior economics ofCNG over petrol provides significant growth opportunity in the segment.

PNG

The PNG segment contributes a mere 10.8% to IGL's Net Sales Revenue. In the last five years,the number of PNG users has increased at a CAGR of 75% due to the low base effect. However,growth potential in the segment is still immense as there exists a huge target market. There aremore than 4.0mn domestic LPG connections in the NCT region. However, due to inherentproblems of filling cylinders, we believe a single user usually has multiple connections.Assuming on an average there are 1.5 connections per user, the target consumer segmentwould be more than 2.66mn. When compared with the current number of domestic PNG users(approx. 1,20,000), the growth potential becomes apparent. However, higher penetration andgrowth of segment could get constrained due to limited availability of APM gas.

Bulk Distribution

Unlike peer Gujarat Gas, IGL has negligible share in the Industrial segment. Nonetheless,opportunity in the segment remains substantial as Delhi and its adjoining areas have demand ofaround 3-4 mmscmd. However, to tap the same IGL would have to depend on the upcoming gaslinkages.

In the CNG segment, privatecars are expected to be majorgrowth drivers with regulatoryconversions over

Higher penetration andgrowth of PNG segment couldget constrained due to limitedavailability of APM gas


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Indraprastha Gas

Gas

CNG Supply Infrastructure

IGL commenced supplying gas from a network of 9 CNG stations, which has increased to 166stations over a period of time. IGL receives gas through its own network of steel pipelines fromGAIL at various points in NCT of Delhi, which is the transported to its own CNG stations(Mother/Online). Other stations (Daughter/Daughter Booster) receive gas form Mother Stationsthrough Mobile Cascades as they are not connected to the pipeline. A brief description on typesof stations is enumerated here below:

Type of CNG Stations

Mother Station: A Mother Station is connected to a natural gas pipeline, which ensures supplyat the station at a pressure of around 19-22kg/cm2g. Stations are equipped with compressor(s)of varying capacities (1,150/1,200 SCM per hour), dispensers, stationary cascades, etc. Acompressor compresses gas to a pressure of 250kg/cm2g and it is dispensed to various kindsof vehicles at maximum pressure of 200kg/cm2g. These compressors are either gas engine orelectric motor driven. The Mother station also feeds the daughter/ daughter booster station bysupplying CNG through mobile cascades of 2,200 water litre capacity each. Usually, a motherstation has one/two filling points to fill mobile cascades.

Online Station: This station functions on similar lines to a Mother Station except that it doesnot have the mobile cascade filling facility, which helps feed daughter/ daughter boosterstations.

Daughter Station: This station receives gas through LCV mounted cascades (a bank ofcylinders) of 2,200 water litre capacity from the Mother stations as they are not connected tothe pipeline. At daughter stations, CNG is dispensed to vehicles on the pressure equilibriumprinciple.

Daughter Booster Station: The only difference between daughter booster station anddaughter station is that a variable suction pressure booster is installed in between the mobilecascade and the dispenser. Function of the booster is to draw the natural gas from the cascaderight from 180kg/cm2g pressure till the pressure reduces to as low as 30kg/cm2g and supply isat a pressure of 200kg/cm2g.


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Indraprastha Gas

Gas

Investment Concerns

Regulations to rein in excessive Margins

City gas distribution (CGD) business has reaped benefits of its monopolistic structure and lackof regulations. However, things are set for a change following recent introduction of CGDguidelines by PNGRB. The PNGRB guidelines have ushered in regulations to limit network tariffand compression tariffs, with maximum allowable reasonable returns of 14% post tax (21.2%pre-tax) on RoCE. Marketing Margins have however, been left untouched. We believe MarketingMargins have not been regulated to promote investments in the City Gas segment andwould be self-regulated due to competitive forces. We believe these guidelines will have majorbearing on existing CGD players.

CGD Margins = Network Tariff + Compression Station Tariff + Marketing Margins

In case of IGL, in an era of monopoly and unregulated Margins, it registered high EBITDAMargins in excess of 40% over the last five years. Similarly, it clocked RoCE ranging from 38%to 45% in the mentioned period. It may be noted here that the CGD guidelines havecompartmentalised overall Margins earned by CGD companies. This is expected to result inmicroscopic analysis of Segmental margins of CGD companies. With IGL currently reportingmargins on blended basis, compartmentalisation of margins is likely to result in high MarketingMargins proving to be an obstacle to hike CNG prices in the event of gas price hike. Thus,segmentation of margins is expected to cap IGL's overall margins to an extent. Even theRegulator has raised eye-brows over IGL's pricing policy and Margins clocked by it. Hence, webelieve IGL would find it difficult to sustain its current high-Margin trend going ahead.

End of Marketing Exclusivity brings end to high Margins

We believe one of the key concerns dogging IGL is impact of end of its Marketing Exclusivity.Key reason for this concern is that IGL’s Marketing Exclusivity is likely to end post FY2011 andthe markets will be opened up for new players. Moreover, the NCR and NCT regions offerlucrative and ready CNG markets for the new players. As a general business rule, competitionimpacts both volumes and margins of a company.

In fact for any competition to survive all participants need to be assured of a level playing fieldand healthy competition. In the CNG business, we believe prospective market participantsshould be provided with gas at similar prices to ensure level playing field. As PNGRB (regulator)has not regulated Marketing Margins of the CGD companies, it will have to ensure that IGL doesnot get gas at lower prices vis-à-vis the new entrants in the NCR and NCT region so that thereis free and fair determination of Marketing Margins on competitive basis. Thus providing a levelplaying field is a pre-requisite for opening up existing markets for the new players. However, westill believe that competition is likely to have minuscule impact on IGL’s volumes. On the CNGvolumes front, IGL is likely to maintain large marketshare in the visible future post end ofMarketing Exclusivity due to its strong parentage (BPCL, GAIL and Government of Delhi),tie-ups with oil marketing companies (OMCs) for dispensing CNG, significant expansion of CNGstations till end of the exclusivity period.

With IGL currently reportingmargins on blended basis,compartmentalisation ofmargins is likely to result inhigh Marketing Marginsproving to be an obstacle tohike in CNG prices in theevent of gas price hike


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Indraprastha Gas

Gas

From a volume perspective, attractiveness of domestic PNG to a new marketer is limited. Dueto low volumes per customer and low profitability (selling price is indexed to subsidised LPGprices) competition is also expected to be low. However, sales to the Commercial segment,such as small restaurants, hospitals and large hotels, could see moderate competition.

Unjustified returns for low-risk business model

IGL has been consistently registering EBITDA Margins of around 40% since the past half adecade, which has been much higher than its peers. As a result, IGL has also clocked superiorReturn Ratios. Owing to such high Margins, IGL started delivering Profits from its first year ofoperations and recovered its total investments (gross fixed assets - GFA) in the venture inFY2007.

IGL has been registering high Margins due to the arbitrage it earned on the following fronts:

Liquid fuel based pricing and APM gas: IGL charges its CNG and PNG customersbased on prices of alternative liquid fuel, while the company procures subsidised gas. Thus, IGLenjoys the benefits of subsidy rather than passing it on to customers. During its initial years ofoperations, such retention did make sense for the company to attain scale and financial strength.However, in the current scenario where ONGC (the producer of gas) is not able to recover itsentire production cost of gas, allowing CGD companies to retain the subsidy is not justified. InFY2008, IGL procured gas at around Rs5.1/mmscm and clocked blended net realisation of Rs12.9/mmscm, thereby earning Gross Margins (contribution margins) of more than Rs7.5/mmsm.

Owing to high Margins, IGLstarted delivering Profits fromits first year of operations andrecovered its total investments(GFA) in the venture in FY2007

IGL charges its CNG and PNGcustomers based on prices ofalternative liquid fuel, while itprocures subsidised gas.Thus, IGL enjoys the benefitsof subsidy rather than passingit on to customers

Similarly, returns on core operating assets have also risen significantly over the past few yearsreflecting higher-than-normal returns registered by the company over the years.


Exhibit 7: IGL - Investment in venture recoveredParticulars (Rs cr) FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008Gross Fixed Assets 199 325 425 477 556 613 668Cumulative Cash Profits 22 102 227 367 530 727 964as % of GFA 11.1 31.4 53.3 76.9 95.3 118.6 144.3Net Worth 147 193 252 312 379 468 576as % of GFA 73.9 59.4 59.3 65.4 68.1 76.3 86.3

Source: Company, Angel Research; Note: Operating Assets = Total Assets - Cash and Investments; CoreProfitability = Net Profit - Other Income

Exhibit 8: Return on Core Operating AssetsParticulars ( Rs cr) FY2004 FY2005 FY2006 FY2007 FY2008Operating Assets 346 335 365 335 358Core Profitability 74 85 101 128 151Return on Core Assets (%) 21.3 25.4 27.6 38.1 42.1


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Indraprastha Gas

Gas

31.8%

14.4%

37.7%

38.3%

0

10

20

30

40

50

60

70

80

Petrol Diesel

Differential due to gas substitution & APM gas Differential due to taxes

(%)


This is significantly higher than peer, Gujarat Gas, which clocks Margins of around Rs4/mmscm.

This arbitrage gets eliminated it the gas is available to IGL at market determined prices and itis not able to pass through the higher cost due to some Regulatory concerns or competitiveforces.

Differential taxes structure on CNG and other transport fuels: Another important factorthat has resulted in IGL clocking high operating margins is the differential tax structure for CNGv/s MS/HSD (in Delhi). In case of MS (petrol) and gas oil (diesel), taxes constitute 48.4% and24.8% of the current selling price, respectively. CNG is cheaper by around 69.5% compared topetrol, of which 32% (whopping 46% of total differential) is due to the tax differential.

Substitution of gas with liquid fuels: Gas has historically traded at a discount to its fairvalue based on calorific value due to various reasons. Ideally, natural gas prices (in mmbtu)

should be equivalent to 17.2% of prevailing crude oil prices. But, due to various bottlenecksincluding transportation issues, it trades at a discount to its fair value. Hence, pricing in relativeto alternative fuels helps improve Margins for CGD companies.

CNG is cheaper by around69.5% compared to petrol, ofwhich 32% is due to the taxdifferential

Due to various bottlenecksincluding transportationissues, gas trades at a discountto its fair value


Exhibit 9: Break-up of Petrol, Diesel, CNG prices in Delhi

51.6%

75.2%87.3%

48.4%

24.8%12.7%

0

20

40

60

80

100

120

Petrol Diesel CNG

Taxes Price with out taxes

(%)

Exhibit 10: Break-up of CNG savings over Petrol and Diesel


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Indraprastha Gas

Gas

Gas price hike eminent

IGL sources gas from GAIL at subsidised APM prices, which is one of the reasons for itssuperior performance. IGL has a gas sourcing agreement with GAIL to supply 2mmscmd of gasfor its operations in NCT (1.9mmscmd for CNG and 0.1mmscmd for PNG). The agreement iseffective till CY2010. We believe the company's growth is unlikely to be constrained due to gasshortage as post exhaustion of current gas allocation; supplies are likely to be increased.However, we believe that there is a strong chance of incremental allocation being priced atmarket determined prices (R-LNG prices). This would likely to push up its blended cost of gasfor IGL.

Similarly, as per the gas pricing order 2006, APM prices were to be revised upwards by 20% forfour years to align it with market determined prices. The first tranche of 20% p.a was affectedwhile the second and third tranche is already overdue. Given that ONGC, the producer of gas isnot able to recover its entire cost, the case for hike in APM gas prices remains strong. More-over, we expect IGL's gas cost to increase when its agreement with GAIL comes up for renewalin CY2010. Given that the company has already recovered its investment in the venture and theCGD business is one of the segments which can absorb high natural gas prices, it is quitepossible that IGL's gas prices could get aligned with R-LNG prices. ONGC is likely to witnessa steep decline in APM gas production going forward, which would result in higher gas cost.

Source: Infraline

Exhibit 11: ONGCs - Expected steep decline in APM Gas production

Ad-hoc domestic LPG pricing, limited APM gas supplies - Deterrent forgrowth of domestic PNG segment

PNG supply to households and commercial consumer's accounts for 7.8% of IGL's total vol-umes sold. This segment offers huge opportunity for IGL in terms of market penetration thoughgrowth is likely to be marred due to the ad-hoc pricing of domestic LPG and limited allocation ofAPM gas to the segment. Currently, PNG enjoys 27.2% discount over domestic LPG, whichspurs users to shift to PNG. However, if the government rolls back the domestic LPG prices inview of the upcoming general elections, benefits of PNG over domestic LPG will reduce to

We believe that there is astrong chance of incrementalallocation being priced atmarket determined prices(R-LNG prices)

We expect IGL's gas cost toincrease when its agreementwith GAIL comes up forrenewal in CY2010

PNG enjoys 27.2% discountover domestic LPG; if thedomestic LPG prices are rolledback due to the upcomingelections, benefits of PNGover domestic LPG willreduce to 13.2%

0.0

10.0

20.0

30.0

40.0

50.0

60.0

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

(mm

scm

d)


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Indraprastha Gas

Gas

13.2%. Thus, any gas price hike in such a situation will reduce the incentive for prospectiveusers to convert to PNG. Further, even if current LPG prices were to be maintained, chances ofpass through of higher gas cost remains bleak in light of the recent MRTPC probe into IGL'sdomestic gas pricing policy due to its high margins in the segment. The MRTPC has directedthe Director General of Investigations and Registration (DGIR) to investigate IGL's pricing policy.

Another important consideration here is the total gas allocation to the PNG segment. Out of thetotal gas allocation of 2 mmscmd, the PNG segment receives a mere 0.1 mmscmd. Given thatIGL has utilised its APM gas allocation for the segment, it will have to rely on the R-LNG forincreased sales to the segment. The company had also procured marginal quantity of R-LNGfor its operations in FY2007 and FY2008. However, the hike in prices on this front was passedon to the large users. This is evident from the increase in blended realisation from the PNGsegment during FY2008 (increase of 8.1% yoy). As incremental volumes were procured forsales to large consumers (industrial users), pass through of the increased cost was easilydone. However, passing through the increased gas price could be difficult for the company goingahead as estimate consumption by domestic customers to increase more than the totalallocated limit by FY2010. However, this does not impact our near-term Earnings estimates ofthe company as it constitutes a very small component of its total gas purchases.Nonetheless, it does indicate the potential margin squeeze in the segment in the long run forthe company.

Gas Utilisation Policy (GUP) a damper to CGD

Gas accounts for 9% of India's total energy mix as against the international average of 22%.Lower share of gas in the energy matrix could be explained by the huge gas deficits. Thedeficits could in turn be attributed to stagnant domestic production and reluctance to pay higherprice for imported gas. However, with improvement in the domestic gas supply, the scenario islikely to change for some sectors. It may however be noted here that the increased supplies are

As IGL has utilised its APMgas allocation for PNGsegment, it will have to relyon the R-LNG for increasedsales to the segment.


Exhibit 12: Comparative Domestic PNG pricing Rs/scmCompany Net Selling Gas Purchase Contribution

Price Price MarginsIGL 13.0 5.1 7.9Gujarat Gas 11.7 7.4 4.3


Exhibit 13: PNG Distribution: Non-APM gas supplies to increase (mmscm)Particulars FY04 FY05 FY06 FY07 FY08 FY09E FY10ETotal PNG sold 10.9 15.2 26.3 36.6 42.9 51.1 59.4APM PNG 36.5 36.5 36.5 36.5 36.5 36.5 36.5PNG procured at R-LNG price - - - 0.1 6.4 14.6 22.9as % of PNG sold 0.2 14.8 28.6 38.5


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Indraprastha Gas

Gas

still likely to be lower than the estimated domestic demand. Thus, to prioritise availability ofgas, the government announced the Gas Utilisation Policy (GUP). According to the Policy, NewExploration Licensing Policy (NELP) gas will be earmarked first for existing plants and theirexpansion projects, and later for green-field projects. These guidelines will be applicable for thenext five years, post which they would be reviewed. Priority allocation translates into differentialaverage gas cost across industries.


Exhibit 14: Draft GUP - Order of Priority for Gas Allocation to different sectors

Among the various user industries, while Power and Fertilizer are likely to benefit from thePolicy, certain users such as CGD companies would be at a disadvantage. CGD stands fourthin the priority list in terms of gas availability, which diminishes chances of CGD incumbents tohave a pie of domestic gas. Thus, the Policy indicates that gas requirements of CGDcompanies should be met through R-LNG imports given the relatively high paying capacity ofthe segment compared to other segments.

Authorisation issues may thwart expansion plans in new geographies

We believe the CGD guidelines could impact IGL's expansion plans significantly as theregulator plans to offer newer geographies for CGD on competitive bidding basis. IGL has formeda joint venture (JV) with Siti Energy and plans to expand into newer areas such as Ghaziabad,Panipat and Sonipat in Haryana. The delay in authorisation and intensifying competition couldaffect IGL's expansion plans.

Existing plants and their Expansionprojects (Priority 1)

Green-field projects (Priority 2)

Priority allocation translatesinto differential average gascost across industries

The Policy indicates that gasrequirements of CGDcompanies should be metthrough R-LNG imports giventhe relatively high payingcapacity of the segmentcompared to other segments

CGD guidelines could impactIGL's expansion planssignificantly as the regulatorplans to offer newergeographies for CGD oncompetitive bidding basis


TM


Indraprastha Gas

Gas

Risks to our Investment Concerns

Impact of competition on Volumes: While we have built in impact of competition on IGL'sMargins, we have not factored in impact of the same on its volumes. Hence, if the new entrantsare able to ramp up their operations and get land at strategic locations, it could have seriousconsequences on IGL's market share, Sales and Profitability.

If APM gas supplies continue: Contrary to our expectation, if IGL continues to enjoy thebenefits of subsidised gas for a longer period of time than estimated by us, it could positivelyimpact its OPMs, free cash flows and valuation.

Higher-than-anticipated EBITDA Margins: In the event of gas price hike, if IGL passes theincreased gas cost to users and maintains higher-than-anticipated EBITDA Margins andProfitability, valuations would improve to that extent.

Impact of recent cool-off in crude prices on CNG, domestic PNG users

Reduction in crude prices unlikely to impact new conversion

Crude prices have crashed from record highs of US $147/barrel to current sub US $40/barrellevels, losing more than 70% of its value. Following correction in crude prices, the governmenthas reduced prices of petrol by Rs5/litre and is likely to follow up with more cuts. However, webelieve the same will not directly impact conversion of new CNG vehicles in Delhi.

Currently, CNG is priced at 69.5% discount to petrol prices. Even if the petrol price falls by afurther Rs5 per litre from current levels (reflecting US $40 of crude oil prices at the exchange rateof 47 per USD, refer Exhibit 16), savings will narrow marginally to 65.7%. Thus, conversioneconomics are not likely to be dented because of the fall in crude oil prices. However it doeshave a psychological impact on conversions. Even at the crude oil price of US $30 per barrel(at Rs47/USD), petrol is likely to be priced at Rs36.7 per litre, at which the saving for CNG userwould be 62%.

Conversion economics arenot likely to be dentedbecause of the fall in crudeoil prices. However it doeshave a psychological impacton conversions.

Source: Company, Angel research

Exhibit 15: Saving over Petrol prices at various levels of CNG, Petrol prices (%)Petrol Price (Rs/litre)

25.62 30.62 35.62 40.62 45.62 50.62 55.62 60.62 16.9 51.4 59.3 65.0 69.3 72.7 75.4 77.6 79.417.4 49.9 58.1 64.0 68.4 71.9 74.7 76.9 78.817.9 48.5 56.9 63.0 67.5 71.1 73.9 76.3 78.218.4 47.1 55.7 61.9 66.6 70.3 73.2 75.6 77.6 18.9 45.6 54.5 60.9 65.7 69.5 72.5 75.0 77.0 19.4 44.2 53.3 59.9 64.8 68.7 71.7 74.3 76.419.9 42.7 52.1 58.8 63.9 67.8 71.0 73.6 75.820.4 41.3 50.9 57.8 63.0 67.0 70.3 73.0 75.2

CN

G P

rice

(Rs/

kg)


TM


Indraprastha Gas

Gas

Based on our interactions with various CNG retrofitters situated in Delhi, impact of theslowdown in the economy, long CNG filling queues and psychological impact of petrol pricecuts have led to reduction in incremental CNG conversions by around 25-30%.

Impact of slowdown ineconomy, long CNG fillingqueues and psychologicalimpact of petrol price cutshave resulted in 25-30% lowerCNG conversions

Source: Company, Angel Research; Note: We have assumed petrol crack at US $5 per barrel and MarketingMargins at Rs2 per litre for calculating the petrol prices in various scenarios

Exhibit 16: Petrol prices at various levels of Crude oil prices and exchange rateExchange Rate (Rs/US$)

43.0 44.0 45.0 46.0 47.0 48.0 49.0 50.0 25.0 33.9 34.1 34.4 34.6 34.9 35.1 35.4 35.630.0 35.6 35.9 36.1 36.4 36.7 37.0 37.3 40.435.0 37.3 37.6 37.9 38.2 38.5 38.9 39.2 39.540.0 38.9 39.3 39.7 40.0 40.4 40.7 41.1 41.545.0 40.6 41.0 41.4 41.8 42.2 42.6 43.0 43.450.0 42.3 42.7 43.2 43.6 44.1 44.5 44.9 45.455.0 44.0 44.5 44.9 45.4 45.9 46.4 46.9 47.360.0 45.7 46.2 46.7 47.2 47.7 48.3 48.8 49.3

From the point of view of existing users in the diesel segment, if diesel price reduces to Rs31.28per litre (to reflect crude oil prices of US $40 per barrel and exchange rate of 47 USD), savingsfor users would still be more than 50%.

Cru

de O

il Pr

ices

(US$

/bbl

)


Exhibit 17: Saving over Diesel prices at various levels of CNG, Diesel prices (%)Diesel price (Rs/lit)

20.86 23.86 26.86 29.86 32.86 35.86 38.86 41.86 44.8616.90 33.4 41.8 48.3 53.5 57.7 61.2 64.2 66.8 69.017.40 31.4 40.0 46.7 52.1 56.5 60.1 63.2 65.8 68.117.90 29.4 38.3 45.2 50.7 55.2 59.0 62.1 64.8 67.218.40 27.5 36.6 43.7 49.3 54.0 57.8 61.1 63.9 66.318.90 25.5 34.9 42.1 47.9 52.7 56.7 60.0 62.9 65.419.40 23.5 33.1 40.6 46.6 51.4 55.5 58.9 61.9 64.419.90 21.5 31.4 39.1 45.2 50.2 54.4 57.9 60.9 63.5C

NG

Pric

es(R

s/kg

)


TM


Indraprastha Gas

Gas

Similarly, if the domestic LPG prices are cut by Rs50 per cylinder, saving for existing userswould still be around 17.5%.


Exhibit 18: Saving over Domestic LPG prices at various levels of PNG, LPG pricesPNG Prices (Rs/scm)

11.89 12.39 12.89 13.4 13.89 14.39 14.89246 10.0 5.6 1.5 (2.3) (5.8 (9.1) (12.2)296 32.3 27.0 22.1 17.5 13.3 9.3 5.7346 54.7 48.4 42.7 37.3 32.4 27.8 23.5396 77.0 69.9 63.3 57.2 51.5 46.2 41.3446 99.3 91.3 83.9 77.0 70.6 64.7 59.2D

omes

tic L

PGPr

ices

(Rs/

cylin

der)

Volume and Sales Outlook

IGL posted CAGR of 10.9% in volumes over FY2006-08 on the back of 9.7% growth in the CNGsegment and high 27.7% CAGR in the PNG segment (due to low base effect). Going ahead, weexpect IGL's overall volumes to grow at higher rate of 13.5% CAGR over FY2008-11E backed byanticipated strong growth in CNG segment. CNG volumes are projected to grow at CAGR of13.1% over FY2008-11E primarily due to high addition in "Others segment" (mainly cars), whichwe expect to increase from around 1,30,000 in FY2008 to 2,79,000 in FY2011E. TheCommonwealth Games, to be held in FY2011, is also expected to see healthy addition of DTCbuses. In the PNG segment, we expect consumption growth to taper off slightly and post CAGRof 18.4%. Here we expect number of households having PNG connections to increase from1,22,000 in FY2008 to 2,32,000 in FY2011E.

CNG volumes are projected togrow at CAGR of 13.1% overFY2008-11E primarily due tohigh addition in "Otherssegment" (mainly cars), whichwe expect to increase fromaround 1,30,000 in FY2008 to2,79,000 in FY2011E

Financial Analysis


Exhibit 19: Key Operating AssumptionsParticulars FY2008 FY2009E FY2010E FY2011ECNG volumes (mmscm) 505 602 669 729PNG volumes (mmscm) 43 51 59 71Total volumes (mmscm) 547 654 728 800Gas Purchase cost (Rs/mmscm) 5.53 5.57 5.59 6.39Other Operating Expenditure (Rs/mmscm) 1.88 1.93 2.05 2.16EBITDA (Rs/mmscm) 5.48 5.41 5.26 4.57


TM


Indraprastha Gas

Gas


Exhibit 20: CNG Volumes

IGL's Revenues grew at a CAGR of 16.4% during FY2006-08. We expect the company'sRevenue growth to moderate and post a CAGR of 14.2% over FY2008-11E despite expectedhigher overall volume CAGR of 13.5% in the same period as against 10.9% CAGR duringFY2006-08. This is because we have assumed only a marginal increase in CNG realisations inFY2011E and freeze in realisations for domestic PNG customers, based on the high Marginsthat IGL has been registering.

0

5

10

15

20

25

0

100

200

300

400

500

600

700

800


CNG volumes volume growth (RHS)

(%)

(mm

scm

)

We expect IGL's Revenuegrowth to moderate and postCAGR of 14.2% overFY2008-11E despite expectedhigher overall volume CAGRof 13.5% in the same period

0

10

20

30

40

50

60

70

80

0

10

20

30

40

50

60

70

80


PNG volumes volume growth (%, RHS)

(%)

(mm

scm

)


Exhibit 21: PNG Volumes


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Indraprastha Gas

Gas


Exhibit 22: Sales Growth Trend

OPMs to contract following increase in gas costs

IGL has long been under the scanner of various stakeholders due to the high RoE and EBITDAMargins it has been earning. IGL managed superior margins compared to other CGD playerslike Gujarat Gas as it procured gas from GAIL at APM prices while the others procured gas atmarket prices. Hence, we expect IGL to clock a marginal increase of Rs0.40/kg in CNGrealisations going ahead. However, we have factored in 20.0% increase in APM gas cost inFY2011E and further increase in cost thereafter. This 20.0% spike in APM gas cost will result ineffective 14.3% increase in gas cost/scm in turn exerting pressure on OPMs FY2011Eonwards. We expect EBITDA Margin to contract by 770bp to 34.8% in FY2011E (v/s high42.5% EBITDA Margins clocked in FY2008) resulting in a mere 4.4% CAGR in EBITDA overFY2008-11E (v/s 18.5% CAGR in EBITDA over FY2006-08). This contraction in Margins isexpected to protract in later years due to the expected increase in gas cost.


Exhibit 23: EBITDA growth trend

0

5

10

15

20

25

0

200

400

600

800

1,000

1,200


Sales Sales growth (%, RHS)

(%)

(Rs

cr)

-10

-5

0

5

10

15

20

25

0

50

100

150

200

250

300

350

400

450


EBITDA EBITDA growth (RHS)

(Rs

cr)

(%)

20.0% spike in APM gas costwill result in effective 14.3%increase in gas cost/scm,which is estimated to exertpressure on OPMs FY2011Eonwards


TM


Indraprastha Gas

Gas

Profits to taper on high Depreciation

We estimate Depreciation to increase by 14.8% yoy in FY2009E and by a whopping 36.5% yoyin FY2010E due to estimated capex of Rs200cr each in FY2009E and FY2010E. This is for theplanned expansion of 50 CNG outlets by the company. During FY2006-08, IGL posted 28.3%CAGR in Bottom-line due to APM gas and its ability to pass on increase in gas cost. Goingahead, over FY2008-11E, we expect IGL's Profit to increase by a mere 2.5% CAGR despiteestimated increase in CNG sales volume, due to the expected increase in gas cost, marginalincrease in realisations and higher depreciation due to estimated capex of Rs400cr.


Exhibit 24: PAT growth trend

RoE to be under pressure over long term

Historically, IGL's RoE has been hovering around 30.0% levels. In FY2007 and FY2008, thecompany's RoE stood at 29.5% and 30.2%, respectively. Going ahead, due to the expectedincrease in gas costs, high depreciation and marginal increase in realisations, we expect RoEto contract to 20.8% in FY2011E. Declining RoE indicates deteriorating capital efficiencies ofthe company.


Exhibit 25: Du-Pont AnalysisParticulars (x) FY2006 FY2007 FY2008 FY2009E FY2010E FY2011EPAT / PBT 0.66 0.67 0.67 0.66 0.66 0.66PBT / EBIT 1.02 1.05 1.10 1.09 1.09 1.12EBIT / Sales 0.30 0.32 0.34 0.33 0.30 0.24Sales / Total Assets 1.25 1.22 1.16 1.16 1.11 1.14Total Assets / Net Worth 1.10 1.08 1.05 1.04 1.03 1.02RoE (%) 28.0 29.5 30.3 28.8 24.8 20.8

-15

-10

-5

0

5

10

15

20

25

30

35

0

50

100

150

200

250


PAT PAT growth (RHS)

(Rs

cr)

(%)

We expect IGL's Profit toincrease by a mere 2.5% CAGRdespite estimated increase inCNG sales volume, due to theexpected increase in gas cost,marginal increase inrealisations and higherdepreciation due to estimatedcapex of Rs400cr

We estimate RoE to contractto 20.8% in FY2011E owing toincrease in gas costs, highdepreciation and marginalincrease in realisations.Declining RoE indicatesdeteriorating capitalefficiencies of the company


TM


Indraprastha Gas

Gas

Outlook and Valuation

We have used DCF methodology to value IGL and have arrived at a Fair Price of Rs105. DCF ismore appropriate to evaluate the company given the expected Margin contraction going forward.

At current levels of Rs101, the stock is discounting 7.0x and 6.9x FY2009E and FY2010EEarnings. IGL has historically traded in the range of 9-13x its one year forward Earnings.However, on account of the meltdown in the global markets and deteriorating fundamentals, webelieve all positives are factored in the stock price. Hence, we remain Neutral on the stock.

Exhibit 26: DCF-based ValuationParticulars ( Rs Cr) FY07 FY08 FY09E FY10E FY11E FY12E FY13E FY14E FY15E FY16E FY17E FY18E FY19ENet Sales 614 706 844 940 1,050 1,163 1,271 1,356 1,441 1,523 1,603 1,682 1,762EBITDA 255 300 354 383 366 338 306 329 352 373 394 414 434EBIT 195 237 282 285 255 231 200 223 247 275 292 310 324% Tax rate (T) 32.8 33.0 34.0 34.0 34.0 34.0 34.0 34.0 34.0 34.0 34.0 34.0 34.0NOPAT [EBIT*(1-T)] 131 159 186 188 168 152 132 147 163 181 193 205 214(+) Depreciation 60 63 72 98 111 107 106 106 105 99 101 104 110(+) Change in NWC (29) 1 9 2 (13) (18) (20) (2) (2) (2) (2) (2) (2)Operating Cash Flows 162 223 267 288 266 241 218 251 266 278 292 307 322(-) Capex 58 83 200 200 75 79 83 87 91 96 101 106 110FCFF 104 140 67 88 191 162 135 164 175 182 192 201 212WACC (%) 14.7 14.7 14.7 14.7 14.7 14.7 14.7 14.7 14.7 14.7 14.7PV of Free Cash Flows 67 88 145 108 78 83 77 70 64 59 54

DCF Output Rs (cr)PV of cashflows (FY09-19E) 892

Add: Terminal value (PV) 433

EV 1325

Less: Net Debt (FY09E) (138)

Equity value 1463

Shares O/s 14

Equity value per share 105

Calculation of WACCRf 7.5%Risk premium 6.5%Market rate of return(req return) 14.0%Beta 0.65Ke 11.7%Stock risk premium 3.0%WACC 14.7%

Terminal Value CalculationFCF in terminal year (Rs Crore) 212

EXIT FCF multiple: (1+g)/(WACC-g) 8.0

Terminal growth rate 2.0%

Terminal value of FCF (Rs cr) 1,706

Implied exit EBITDA multiple (x) 3.9


TM


Indraprastha Gas

Gas

Exhibit 29: One-Year Forward P/BV

Source: Company, Angel ResearchSource: Company, Angel Research

Exhibit 30: One-Year Forward EV/EBITDA

-

50

100

150

200

Apr-04 Dec-04 Aug-05 Apr-06 Dec-06 Aug-07 Apr-08 Dec-08

Sh

are

Price

(Rs)

2.0x

2.5x

3.0x

3.5x

4.0x

0

500

1000

1500

2000

2500

3000


EV

(Rs

cr)

3.50x

4.50x

5.50x

6.50x

Exhibit 27: One-Year Forward P/E


30

80

130

180

230


Share

Price

(Rs)

7x

9x

11x

13x

15x


Exhibit 28: Rolling and Median P/E

5.0

9.0

13.0

17.0

21.0

25.0


PE

mu

ltip

le


TM


Indraprastha Gas

Gas

(250)

(220)

(190)

(160)

(130)

(100)

(70)

(40)

(10)

20

50

Apr-05 Mar-06 Feb-07 Jan-08 Dec-08

BSE OIL & GAS IGL

Exhibit 33: Underperformance Relative to Sensex

Source: Company, Angel ResearchSource: Company, Angel Research

Exhibit 34: Underperformance Relative to OiL & Gas Index

Exhibit 31: Relative Performance to Sensex - Oil & Gas Index

Source: Company, Angel Research Source: Company, Angel Research

Exhibit 32: Relative Performance to Peers

0

50

100

150

200

250

300

Apr-

05

Jun

-05

Aug

-05

Oct-05

Dec-0

5

Feb

-06

Apr-

06

Jun

-06

Aug

-06

Oct-06

Dec-0

6

Feb

-07

Apr-

07

Jun

-07

Aug

-07

Oct-07

Dec-0

7

Feb

-08

Apr-

08

Jun

-08

Aug

-08

Oct-08

Dec-0

8

Petronet GAIL Gujarat Gas IGL

-

50

100

150

200

250

300

350

400

450


IGL SENSEX BSEOIL

SENSEX

IGL

BSE OIL & GAS

(150)

(125)

(100)

(75)

(50)

(25)

-

25


SENSEX IGL


TM


Indraprastha Gas

Gas

Profit & Loss Statement Rs croreY/E March FY2007 FY2008 FY2009E FY2010E

Net Sales 614.1 706.0 844.1 939.5% chg 17.9 15.0 19.6 11.3

COGS 267.7 302.9 364.0 407.1

Operating and other expenditure 91.2 103.0 126.4 149.4

EBIDTA 255.2 300.0 353.6 383.1(% of Net Sales) 41.6 42.5 41.9 40.8

Other Income 10.2 23.4 25.3 25.4

Depreciation& Amortisation 59.8 62.6 71.8 98.1

Interest - - - -

PBT 205.6 260.9 307.1 310.3(% of Net Sales) 33.5 37.0 36.4 33.0

Extraordinary Expense/(Inc.) - - - -

Tax 67.6 86.4 104.6 105.7

(% of PBT) 32.9 33.1 34.1 34.1

Reported PAT 138.0 174.5 202.5 204.6% chg 30.0 26.5 16.1 1.1

(% of Net Sales) 22.5 24.7 24.0 21.8

Adjusted PAT 138.0 174.5 202.5 204.6% chg 30.0 26.5 16.1 1.1

Y/E March FY2007 FY2008 FY2009E FY2010E

SOURCES OF FUNDSEquity Share Capital 140.0 140.0 140.0 140.0

Reserves& Surplus 327.5 436.5 563.1 684.0

Shareholders Funds 467.5 576.5 703.1 824.0Total Loans - - - -

Deposits from customers 5.4 6.8 7.4 8.7

Deffered Tax Liability (net) 30.2 23.9 18.6 13.4

Total Liabilities 503.1 607.1 729.2 846.0APPLICATION OF FUNDSGross Block 613.1 668.0 767.0 1,047.0

Less: Acc. Depreciation 249.7 310.4 382.3 480.3

Net Block 363.4 357.6 384.7 566.6Capital Work-in-Progress 31.0 59.0 160.0 80.0

Investments 127.6 108.8 108.8 108.8Current Assets 106.1 227.9 234.3 259.9

Current liabilities 125.1 146.2 158.7 169.3

Net Current Assets (19.0) 81.8 75.7 90.6Misc Exp - - - -Total Assets 503.1 607.1 729.2 846.0

Balance Sheet Rs crore

Cash Flow Statement Rs croreY/E March FY2007 FY2008 FY2009E FY2010E

Profit before tax 205.6 260.9 307.1 310.3

Depreciation 59.8 62.6 71.8 98.1

Deposits accepted during the year 1.1 1.4 0.6 1.3

(Inc)/Dec in Working Capital 29.1 (1.9) (8.7) (1.7)

Interest - - - -

Direct taxes paid (72.6) (92.8) (109.9) (111.0)

Others (10.1) (17.6) - -

Cash Flow from Operations 212.9 212.6 261.0 297.0(Inc)/Dec in Fixed Assets (58.5) (82.8) (200.0) (200.0)

Free Cash Flow 154.4 129.8 61.0 97.0(Inc)/Dec in Investments (85.1) 18.8 - -

Issue of Equity - - - -

Inc./(Dec.) in loans - - - -

Dividend Paid (Incl. Tax) (39.9) (49.1) (75.8) (83.8)

Interest - - - -

Cash Flow from Financing (39.9) (49.1) (75.8) (83.8)Inc./(Dec.) in Cash 29.4 99.4 (14.8) 13.2

Opening Cash balances 11.0 40.4 139.9 125.1Closing Cash balances 40.4 139.9 125.1 138.3

Key Ratios

Y/E March FY2007 FY2008 FY2009E FY2010E

Per Share Data (Rs)EPS 9.9 12.5 14.5 14.6Cash EPS 14.1 16.9 19.6 21.6DPS 3.0 4.0 4.6 5.1Book Value 33.4 41.2 50.2 58.9Operating Ratios (days)Inventory 12.4 11.8 12.0 12.0Debtors 11.2 11.7 11.5 11.5Creditors 100.5 93.1 90.0 90.0Return Ratios (%)RoE 29.5 30.3 28.8 24.8RoCE 41.8 41.2 40.1 34.6ROIC 58.3 66.3 56.9 47.6Dividend Payout (incl taxes) 35.6 37.6 37.4 40.9Valuation Ratios (x)P/E 10.2 8.1 7.0 6.9P/E (Cash EPS) 7.1 6.0 5.2 4.7P/BV 3.0 2.5 2.0 1.7EV/Sales 2.2 1.8 1.5 1.4EV/EBITDA 5.4 4.2 3.6 3.3


TM


Indraprastha Gas

Gas

Fund Management & Investment Advisory ( 022 - 4040 3800 / 2835 9600)P. Phani Sekhar Fund Manager - (PMS) [email protected] Bhamre Head - Investment Advisory [email protected] Mehta AVP - Investment Advisory [email protected] Team ( 022 - 4040 3800 / 2835 9600)Hitesh Agrawal Head - Research [email protected] Kour Nangra VP-Research, Pharmaceutical [email protected] Jajoo Automobile [email protected] Shah IT, Telecom [email protected] Pareek Oil & Gas [email protected] Burde Metals & Mining, Cement [email protected] Agrawal Banking [email protected] Solanki Power, Mid-cap [email protected] Kanani Infrastructure, Real Estate [email protected] Shah FMCG , Media [email protected] Bambha Capital Goods, Engineering [email protected] Sehgal Retail [email protected] Dalmia Pharmaceutical [email protected] Mavani Research Associate (Automobile) [email protected] Vora Research Associate (Oil & Gas) [email protected] Chandak Research Associate (Banking) [email protected] Mate Research Associate (Infra, Real Estate) [email protected] Boob Research Associate (FMCG , Media) [email protected] Srinivasan Research Associate (Power, Mid-cap) [email protected] Bagaria PMS [email protected] Idnany Research Associate - (PMS) [email protected] Wagle Chief Technical Analyst [email protected] Joshi AVP Technical Advisory Services [email protected] Ail Manager - Technical Advisory Services [email protected] Kushe Sr.Technical Analyst [email protected] Jagtap Sr. Technical Analyst [email protected] Sanghvi Sr. Technical Analyst [email protected] Vasudeo Technical Advisor (TAS) [email protected] Dayma Derivative Analyst [email protected] Research TeamAmar Singh Research Head (Commodities) [email protected] P Sr. Technical Analyst [email protected] Gupta Sr. Technical Analyst [email protected] Patki Sr. Technical Analyst [email protected] Research Team (Fundamentals)Badruddin Sr. Research Analyst (Agri) [email protected] Pote Research Analyst (Energy) [email protected] Shetty Research Editor [email protected] Patil Production [email protected]

Research & Investment Advisory: Acme Plaza, 3rd Floor ‘A’ wing, M.V. Road, Opp Sangam Cinema, Andheri (E), Mumbai - 400 059

DisclaimerThis document is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person. Persons into whose possession thisdocument may come are required to observe these restrictions.Opinion expressed is our current opinion as of the date appearing on this material only. While we endeavor to update on a reasonable basis the information discussed in this material, there may be regulatory,compliance, or other reasons that prevent us from doing so. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change withoutnotice. Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein.The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true and are for general guidance only. While everyeffort is made to ensure the accuracy and completeness of information contained, the company takes no guarantee and assumes no liability for any errors or omissions of the information. No one can usethe information as the basis for any claim, demand or cause of action.Recipients of this material should rely on their own investigations and take their own professional advice. Each recipient of this document should make such investigations as it deems necessary to arriveat an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine themerits and risks of such an investment. Price and value of the investments referred to in this material may go up or down. Past performance is not a guide for future performance. Certain transactions - futures,options and other derivatives as well as non-investment grade securities - involve substantial risks and are not suitable for all investors. Reports based on technical analysis centers on studying charts ofa stock's price movement and trading volume, as opposed to focusing on a company's fundamentals and as such, may not match with a report on a company's fundamentals.We do not undertake to advise you as to any change of our views expressed in this document. While we would endeavor to update the information herein on a reasonable basis, Angel Broking, its subsidiariesand associated companies, their directors and employees are under no obligation to update or keep the information current. Also there may be regulatory, compliance, or other reasons that may prevent AngelBroking and affiliates from doing so. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice. Angel BrokingLimited and affiliates, including the analyst who has issued this report, may, on the date of this report, and from time to time, have long or short positions in, and buy or sell the securities of the companiesmentioned herein or engage in any other transaction involving such securities and earn brokerage or compensation or act as advisor or have other potential conflict of interest with respect to company/ies mentioned herein or inconsistent with any recommendation and related information and opinions.Angel Broking Limited and affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companiesreferred to in this report, as on the date of this report or in the past.

Buy (Upside > 15%) Accumulate (Upside upto 15%) Neutral (5 to -5%)Reduce (Downside upto 15%) Sell (Downside > 15%)

Ratings (Returns) :


TM


Indraprastha Gas

Gas

Regional Offices:

Central Support & Registered Office:G-1, Akruti Trade Centre, Road No. 7, MIDC Marol, Andheri (E), Mumbai - 400 093 Tel : 2835 8800 / 3083 7700

Branch Offices:

Private Client Group Offices: Sub - Broker Marketing:Ahmedabad (C. G. Road) - Arpit Shah Tel: (079) 3982 9934

Rajkot (Race course) - Nishit Maniar Tel: (0281) 2490 847

Powai - Pankaj Mungre Tel: (022) 3952 6500Surat - Arpan Shroff Tel: (0261) 3071 600

Rajkot (Ardella) Tel.: (0281) 2926 568

Rajkot (University Rd.) - Tel: (0281) 2331 418

Jamnagar (Cross Word) - Tel: (0288) 2751 118

Jamnagar(Indraprashta) - Tel: (0288) 3941 3940

Jodhpur - Tel: (0291) 3941 3940

Junagadh - Tel : (0285) 3941 3940

Keshod - Tel: (02871) 234 027 / 233 967

Kolkata (N. S. Rd) - Tel: (033) 3982 5050

Kolkata (P. A. Shah Rd) - Tel: (033) 3001 5100

Mehsana - Tel: (02762) 645 291 / 92

Kota - Tel : (0744) 3941 3940

Mansarovar - Tel:(0141) 3057 700/98280 90009

Mysore - Tel: (0821) 4004 200 - 30

Nadiad - Tel : (0268) - 2527 230 / 34

New Delhi (Nehru Place) - Tel: (011) 3982 0900

New Delhi (Preet Vihar) - Tel: (011) 4310 6400

Palanpur - Tel: (02742) 308 060 - 63

Patel Nagar - Tel : (011) 45030 600

Patan - Tel: (02766) 222 306

Porbandar - Tel : (0286) 3941 3940

Noida - Tel : (0120) 4639 900 / 1 / 9

Nashik - Tel: (0253) 3011 500 / 1 / 11

New Delhi (Bhikaji Cama) - Tel: (011) 41659711

New Delhi (Lawrence Rd.) - Tel: (011) 3262 8699 / 8799

New Delhi (Pitampura) - Tel: (011) 4751 8100

Porbandar (Kuber Life Style) - Mob.-98242 53737

Pune - Tel: (020) 6640 8300 / 3052 3217

Pune (Camp) - Tel: (020) 3092 1800

Rajamundhry - Tel: (0883) 3982 200

Pune - Tel : (020) 3093 4400 / 3052 3217

Jamnagar (Moti Khawdi) - Tel: (0288) 2846 026

Jamnagar(Madhav Plaza) - Tel: (0288) 2665 708

Ahmedabad (Sabarmati) - Tel : (079) 3091 6100 / 01

Ahmedabad (Satellite) - Tel: (079) 4000 1000

Ahmedabad (Shahibaug) -Tel: (079)3091 6800 / 01

Amreli - Tel: (02792) 228 800/231039-42

Anand - Tel : (02692) 398 400 / 3

Amritsar - Tel: (0183) 3941 3940

Indore - Tel: (0731) 4232 100 / 31 / 40

Jaipur - (Rajapark) Tel: (0141)3057 900

Jalgaon - Tel: (0257) 2234 832

Gandhinagar - Tel: (079) 4010 1010 - 31

Gajuwaka - Tel: (0891) 3987 100 - 30

Faridabad - Tel: (0129) 3984 000

Gandhidham - Tel: (02836) 237 135

Gondal - Tel: (02825) 398 200

Ghaziabad - Tel: (0120) 3980 800

Gurgaon - Tel: (0124) 3050 700

Himatnagar - Tel: (02772) 241 008 / 241 346

Hyderabad - Tel: (040) 4222 2070-5

Hubli - Tel: (0836) 4267 500 - 22

Indore - Tel: (0731) 3049 400

Bhopal - Tel :(0755) 3941 3940

Bikaner - Tel: (0151)3941 3940 / 98281 03988

Chandigarh - Tel: (0172) 3092 700

Deesa - Mobile: 97250 01160

Erode - Tel: (0424) 3982 600

Ankleshwar - Tel: (02646) 398 200

Baroda - Tel: (0265) 2226 103-04 / 6624 280

Baroda (Akota) - Tel: (0265) 2355 258 / 6499 286

Baroda (Manjalpur) - Tel: (0265) 6454280-3

Bhavnagar (Shastrinagar)- Mobile: 92275 32302

Bhavnagar - Tel: (0278) 3941 3940

Bengaluru - Tel: (080) 4072 0800 - 29

Andheri (W) - Tel: (022) 2635 2345 / 6668 0021

Bandra (W) - Tel: (022) 2655 5560 / 70

Andheri ( L o k h a n d w a l a ) - Te l : ( 0 2 2 ) 3 9 5 2 5 6 7 9

Bandra (W) - Tel: (022) 6643 2694 - 99

Borivali (W) - Tel: (022) 3952 4787

Borivali (Punjabi Lane) - Tel: (022) 3951 5700.

Chembur - (Basant) - Tel:(022) 3267 9114/ 15

Kalbadevi - Tel: (022) 2243 5599 / 2242 5599

Kandivali (W) - Tel: (022) 2867 3800/2867 7032

Chembur - Tel: (022) 6703 0210 / 11 /12

Fort - Tel: (022) 3958 1887

Ghatkopar (E) - Tel: (022) 6799 3185 - 88

Malad (E) - Tel: (022) 2880 4440

Kandivali - Tel: (022) 2846 1654 / 2056 / 2076

Ahmedabad (Kalupur) - Tel: (079) 3041 4000 / 01

Ahmedabad (Maninagar) - Tel: (079) 3981 7430 / 1

Ahmeda. (Ramdevnagar) - Tel : (079) 4024 3842 / 43

Malad (Natraj Market) - Tel:(022) 28803453 / 24

Masjid Bander - Tel: (022) 2345 5130 /1 / 8 / 42 /28

Mulund (W) - Tel: (022) 2562 2282

Nerul - Tel: (022) 2771 9012 - 17

Sion - Tel: (022) 3952 7891

Powai (E) - Tel: (022) 3952 5887

Thane (W) - Tel: (022) 2539 0786 / 0650 / 1

Vashi - Tel: (022) 2765 4749 / 2251

Vile Parle (W) - Tel: (022) 2610 2894 / 95

Ajmer - Tel: (0145) 3941 3940

Alwar - Tel: (0144) 3941 3940 / 99833 60006

Ahmeda. (Bapu Nagar) - Tel : (079) 3091 6900 - 02

Ahmeda. (Gurukul) - Tel: (079) 3011 0800 / 01

Ahmedabad (C. G. Road) - Tel: (079) 4021 4023

Wadala - Tel: (022) 2414 0607 / 08

Rajkot - (Bhakti Nagar) Tel: (0281) 2361 935

Rajkot - (Indira circle) Tel : (0281) 3982 985

Rajkot (Orbit Plaza) - Tel: (0281) 3983 485

Rajkot (Pedak Rd) - Tel: (0281) 3985 100

Rajkot (Ring Road)- Mobile: 99245 99393

Surat (Ring Road) - Tel : (0261) 3071 600

Surendranagar - Tel : (02752) 223305

Udaipur - (0294) 3941 3940

Valsad - Tel - (02632) 645 344 / 45

Vapi - Tel: (0260) 3088 210 / 211 / 2400 214

Varachha - (0261) 3091 500

Secunderabad - Tel : (040) 3093 2600

Surat (Mahidharpura) - Tel: (0261) 3092 900

Surat - (Parle Point) - Tel : (0261) 3091 400

Vijayawada - Tel :(0866) 3984 600

Rajkot (Star Chambers) - Tel : (0281)3981 200

Rajkot - (Star Chambers) - Tel : (0281) 2225 401-3

Salem - Tel: (0427) 3982 810

Warangal - Tel: (0870) 39413940

Agra Branch - Tel: (0562) 4037200

Varanasi - Tel: (0542) 2221129, 3262431

Mumbai (Powai) - Vishal Mishra Tel: (022)3952 6500.

Pune - Shardul Kulkarni / Sulbha Shinde Tel: (020) 3071 0250 / 2551 3143

Surat - Pratik Sanghvi / Dinesh Maheshwari Tel: (0261) 3071 600

Rajkot - Vijay Popat Tel :(0281) 2490 847

New Delhi - Pawan Ramrakhyani Tel: (011) 3045 1300 / 4077 1300

Visakhapatnam - Vamsi Krishna Tel :(0891) 3987 200 - 29

Jaipur - Sumit Trivedi Tel: (0141) 3941 3940

Kanpur - Anupam Mehrotra Tel: (0512) 3017 700

Kolkata - Vikram Malik Tel: (033) 3941 3940

Lucknow - Ejaz Mohyi Tel: (0522) 3057 700

Nagpur - Sanchit Tiwari Tel: (0712) 3041 533

Nashik - Nilesh Supekar Tel: (0253) 3011 400 / 1

Ludhiana - Pooja Jain Tel: (0161) 4697 400

Ahmedabad - Manoj Johnson Tel: (079) 3982 2300 / 3982 5200

Bengaluru - Dhiraj Pandey Tel: (080) 3941 3940

Chennai - Thiruneer Selvan Tel: (044) 3941 3940

Hyderabad - Mohsin Ahmed Tel: (040) 3091 2222

Coimbatore - Lakshminarayanan R Tel: (0422) 3941 3940

Indore - Avtar Singh Grewal Tel: (0731) 3941 3940

Cochin - Jubin Varkey Tel: (0484) 3941 3940

Corporate & Marketing Office : 612, Acme Plaza, M.V. Road, Opp Sangam Cinema, Andheri (E), Mumbai - 400 059 Tel : (022) 4000 3600 / 3941 3940NRI Helpdesk : e-mail : [email protected] Tel : (022) 4000 3622 / 4026 2700Investment Advisory Helpdesk : e-mail : [email protected] Tel : (022) 3952 4568Commodities : e-mail : [email protected] Tel : (022) 3952 9200PMS : e-mail : [email protected] Tel: (022) 3953 2800Feedback : e-mail : [email protected] Tel : (022) 2835 5000

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