strong buy indraprastha gas...

32.1%

Q2

FY1

9 –

Re

sult

Up

dat

e

November 12, 2018

Indraprastha Gas Ltd. Downside

Scenario

Current

Price

Price

Target

363

Upside

Scenario

STRONG BUY

275Strong volume visibility will lead to re-rating in the near term

The company is well poised for strong growth going aheadThe company has robust business prospects with earnings growth likely to bestrong over the next few years. We believe volume to remain healthy givenstrong push from the government and better pricing power gives it the leeway topass on cost hikes. The pricing power has improved with the rise in crude pricesover the last few months and going ahead healthy earnings growth is expected.We expect EPS CAGR of 18.0% over FY18-20E.

Cost benefits to improve the margins going aheadHigher domestic gas prices, RLNG prices and depreciation of rupee has resultedin increase in raw material prices in Q2FY19 and were up by 42% y-o-y to INR 842crore. Per unit gross margin stood at Rs 10.7/scm, down 42bps y-o-y and 12bpsq-o-q. The company reported EBITDA margin of 19.6% in Q2FY19, decline of 300bps y-o-y & 110 bps q-o-q due to sharp increase in the cost of natural gas.Domestic gas is much cheaper than imported gas due to formula based pricingprescribed by the government. Imported gas cost has risen this calendar yearand is very unlikely to see such sharp increase going ahead. However, thecompany has good pricing power in the segments it supplies imported gas. Weexpect EBITDA margins to be around 24-25% by FY20E.

Volume growth outlook remains robust going aheadThe company has been also expanding beyond its core market of NCR into newareas like Rewari. The company has got authorization to develop the CGDnetwork in Meerut, Muzaffarnagar and Shamli districts. Besides, the governmentencouragement to use clean fuel and ambitious plans of expanding the CGDnetwork across many cities in the country. This will aid in visibility and presentgood opportunities for seasoned players like Indraprastha gas and will improvethe volume growth in the long run.

ValuationsIndraprastha Gas Ltd being the near monopoly supplier of CNG to vehicles andPNG to households in areas around Delhi, we believe the company has stronggrowth triggers going ahead and is placed in a sweet spot. We expectRevenue/EBITDA/PAT to grow at a CAGR of 11%/19%/14% over FY18-20E drivenby strong volume growth. With natural gas based fuels becoming more costcompetitive in the wake of rising prices of competitive fuels, vehicle conversionto CNG and households shifting to PNG in Delhi and surrounding areas shouldpick pace.At the CMP of INR 275 the stock trades at 11.1x FY20E EBITDA of INR 1571 crore.We have a target price of INR 363 per share, thereby, representing an upside of32.1% from current valuations.

Market Data

Industry Oil & Gas

Sensex 35159

Nifty 10585

Bloomberg Code IGL:IN

Eq. Cap. (INR Crores) 140

Face Value (INR) 2

52-w H/L 345/215

Market Cap (INR Crores) 19233

Valuation Data FY18 FY19E FY20E

P/E (x) 26.5 21.9 18.8

P/B (x) 5.4 4.4 3.7

EV/EBITDA (x) 17.0 13.6 11.1

Indraprastha Gas Ltd Vs SENSEX

Sept’18 Jun’18 Sept’17

Promoters 45.00 45.00 45.00

FIIs 21.14 20.11 25.26

DIIs 22.15 22.72 18.46

Retail 11.71 12.17 11.28

Total 100.0 100.0 100.0

Shareholding Pattern (in %)

*

* Read last page for disclaimer & rating rationale

(INR Crores) FY16 FY17 FY18 FY19E FY20E

Net Sales 3,686 3,815 4,534 5,263 5,615

Growth% 3.5% 18.8% 16.1% 6.7%

EBITDA 775 964 1,114 1,324 1,571

Growth% 24.4% 15.6% 18.9% 18.7%

PAT 458 606 736 878 1,024

Growth% 32.3% 21.5% 19.3% 16.6%

EPS (INR) 6.5 8.7 10.5 12.5 14.6

P/E (x) 17.4 23.2 26.5 21.9 18.8

P/B (x) 3.1 4.7 5.4 4.4 3.7

EV/EBITDA(x) 9.7 14.0 17.0 13.6 11.1

ANALYSTVaibhav Chowdhry [email protected]

NALANDA SECURITIES PRIVATE LIMITED310-311 Hubtown Solaris, NS Phadke Marg, Opp Teli Gali, Andheri East, Mumbai 69+91-22-6281-9649 | [email protected] | www.nalandasecurities.com

ASSOCIATEAditya Khetan [email protected]

Source: Company, NSPL Research

Institutional Research

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IGL Sensex

mailto:[email protected]




Indraprastha Gas Ltd | Q2FY19 - Result Update |

Q2FY19 Result Analysis

(INR Crores) Q2FY19 Q2FY18 Q1FY19 Y-o-Y Q-o-Q

Revenue (Net of excise duty) 1421.5 1112.0 1287.4 27.8% 10.4%

COGS 842.5 593.0 741.8 42.1% 13.6%

Employee Expenses 30.1 25.9 31.1 16.2% -3.2%

Other Expenses 240.9 211.5 219.5 13.9% 9.8%

Total Expenses 1113.5 830.4 992.4 34.1% 12.2%

EBITDA 308.0 281.6 295.1 9.4% 4.4%

Depreciation 50.3 45.0 47.3 11.7% 6.4%

Other Income 33.2 25.0 26.2 32.8% 26.4%

EBIT 290.9 261.5 274.0 11.2% 6.1%

Finance Cost 0.6 0.4 0.6 55.6% 0.0%

PBT (before exceptional item) 290.3 261.2 273.5 11.2% 6.2%

Share of associates 0.0 0.0 0.0 - -

Exceptional items 0.0 0.0 0.0 - -

PBT (after exceptional item) 290.3 261.2 273.5 11.2% 6.2%

Taxes 103.0 92.3 97.6 11.6% 5.6%

Net Profit 187.3 168.9 175.9 10.9% 6.5%

EPS in INR 2.7 2.4 2.5 11.2% 6.8%

• The company’s net sales grew 27.8% y-o-y and 10.4% q-o-q to INR 1421.5 crore in Q2FY19.• EBITDA grew by 9.4% y-o-y and 4.4% q-o-q to INR 308 crore in Q2FY19. EBITDA Margins stood at 21.7% in Q2FY19 as against

25.3% in Q2FY18 and 22.9% in Q1FY19. Margins remained under pressure owing to rise in natural gas prices .• Employee expense grew by 16.2% y-o-y and de-grew by 3.2% q-o-q to INR 30.1 crore.• Finance cost grew by 55.6% y-o-y to INR 0.6 crore in Q2FY19.• PBT grew by 11.2% y-o-y & 6.2% q-o-q to INR 290.3 crore in Q2FY19.• Reported PAT grew 10.9% y-o-y and 6.5% q-o-q to INR 187.3 crore in Q2FY19. PAT margins stood at 13.2% in Q2FY19 as

compared to 15.2% in Q2FY18 and 13.7% in Q1FY19.

• CNG volumes for Q2FY19 grew by 12.8% y-o-y to 290 million kg.• Industrial PNG volumes grew strongly by 25.5% y-o-y to 64 million SCM. Domestic and NG each recorded growth of 3.8% y-o-y

& 4.7% y-o-y to 27 million SCM & 45 million SCM respectively in Q1FY19.• Total PNG volumes grew by 13.3% y-o-y to 136 million SCM in Q2FY19.• Total gross sales value during Q2FY19 stood at INR 1564 crore as compared to INR 1241 crore in Q2FY18, thereby, recording a

growth of 26% y-o-y. Product wise, CNG recorded sales of INR 1174 crore in Q2FY19 as compared to INR 962 crore, thereby,recording a growth of 22% y-o-y and PNG recorded sales of INR 390 crore in Q2FY19, showing an impressive growth of 39.8%.The increase in turnover is due to the increase in the total sales quantity by 12.9%.






Volume Split Q2FY19 Q2FY18 Y-o-Y

CNG (Million Kg) 290 257 12.8%

PNG

Industrial/Commercial (Million SCM) 64 51 25.5%

Domestic (Million SCM) 27 26 3.8%

NG (Million SCM) 45 43 4.7%

Total PNG (Million SCM) 136 120 13.3%

Sales Split (INR Crores) Q2FY19 Q2FY18 Y-o-Y

CNG 1174 962 22.0%

PNG 390 279 39.8%

Total 1564 1241 26.0%

Volume & Sales split for CNG & PNG





995

1067

1047 11

06 1161 12

45 1308 13

57 1422

1569

260

245

247

230 27

7

282

263

291

295

308

148

144

145

135

162

169

166

175

176

187

0

200

400

600

800

1000

1200

1400

1600

Q1

FY1

7

Q2

FY1

7

Q3

FY1

7

Q4

FY1

7

Q1

FY1

8

Q2

FY1

8

Q3

FY1

8

Q4

FY1

8

Q1

FY1

9

Q2

FY1

9

In IN

R C

rore

Revenue EBITDA PAT


Record volumes seen in Q2FY19, highest ever quarterly volumes

Margins to improve going ahead

Highest ever quarterly profit recorded in Q2FY19 on the back of strong volumes

EPS growth to remain in double digits going ahead ROCE to remain stable going ahead





19.1%

22.8%22.2%

22.8%

25.3%

11.3%

14.4% 14.7% 15.1%

16.5%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

22.0%

24.0%

26.0%

FY1

6

FY1

7

FY1

8

FY1

9E

FY2

0E

In %

EBITDA Margin Net Profit Margin

28

9 30

6

30

1

30

3 32

3 33

5

33

5

33

3 35

5 37

8

93 10

2

10

4

10

7

10

9

12

0

12

6

12

4

12

9

13

6

0

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100

150

200

250

300

350

400

Q1

FY1

7

Q2

FY1

7

Q3

FY1

7

Q4

FY1

7

Q1

FY1

8

Q2

FY1

8

Q3

FY1

8

Q4

FY1

8

Q1

FY1

9

Q2

FY1

9

IN M

illio

n S

CM

CNG PNG

24.1%

26.5%

25.6%

25.8%

25.6%

24.0%

24.5%

25.0%

25.5%

26.0%

26.5%

27.0%

FY1

6

FY1

7

FY1

8

FY1

9E

FY2

0E

In %

6.5

8.7

10.5

12.5

14.6

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

FY1

6

FY1

7

FY1

8

FY1

9E

FY2

0E

In IN

R










Profit & Loss (INR Crores) FY16 FY17 FY18 FY19E FY20E

Net sales 3,686 3,815 4,534 5,263 5,615

COGS 2,276 2,084 2,491 2,880 2,863

Employee Expenses 78 92 106 121 131

Other Expenses 557 676 823 938 1,050

EBITDA 775 964 1,114 1,324 1,571

D&A 156 167 181 198 232

Other income 10 1 2 2 2

EBIT 643 843 1,035 1,252 1,472

Interest Expense 10 1 2 2 2

Share of profit of associates 54 63 65 72 76

PBT 687 904 1,098 1,322 1,546

Tax 229 298 362 444 522

PAT 458 606 736 878 1,024

EPS in INR 6.5 8.7 10.5 12.5 14.6

Balance Sheet (INR Crores) FY16 FY17 FY18 FY19E FY20E

Share Capital 140 140 140 140 140

Reserves & Surplus 2,430 2,872 3,507 4,224 5,089

Shareholder's Funds 2,570 3,012 3,647 4,364 5,229

Employee benefit obligation 15 20 13 15 16

Deferred tax liabilities 179 202 260 260 260

Total Non-current liabilities 193 223 273 275 276

Trade payables 161 274 339 391 389

Other financial liabilities 494 649 798 926 988

Employee benefit obligation 1 1 1 1 1

Other current liabilities 29 35 39 145 154

Current liabilities 685 959 1,176 1,463 1,532

Total Equity and Liabilities 3,449 4,193 5,096 6,102 7,037

Fixed Assets 2,003 2,103 2,416 2,676 2,906

Capital work in progress 267 352 371 338 338

Intangible assets 16 14 16 15 15

Investments 327 366 426 415 435

Loans – Security deposits 6 8 8 8 9

Income tax assets 7 2 15 15 15

Other non current assets 11 18 46 46 49

Total Non-current Assets 2,638 2,863 3,299 3,513 3,766

Inventories 58 52 52 71 71

Current Investments - 418 890 934 981

Trade receivables 251 201 226 263 280

Cash and cash equivalents 453 126 218 867 1,481

Other bank balance 0 483 354 388 388

Loans 2 2 6 8 8

Other financial assets 15 21 28 32 34

Other current assets 31 27 22 26 28

Total Current Assets 811 1,330 1,797 2,589 3,271

Total Assets 3,449 4,193 5,096 6,102 7,037






Source: NSPL Research




RATIOS FY16 FY17 FY18 FY19E FY20E

Profitability

Return on Assets(%) 13.3% 14.5% 14.4% 14.4% 14.6%

Return on Capital (%) 24.1% 26.5% 25.6% 25.8% 25.6%

Return on Equity (%) 17.8% 20.1% 20.2% 20.1% 19.6%

Margin Trend

Gross Margin (%) 34.7% 41.0% 40.7% 41.0% 44.4%

EBITDA Margin (%) 19.1% 22.8% 22.2% 22.8% 25.3%

Net profit Margin (%) 11.3% 14.4% 14.7% 15.1% 16.5%

Liquidity

Current ratio 1.2 1.4 1.5 1.8 2.1

Quick ratio 1.0 1.3 1.4 1.7 2.0

Debtor days 23 17 16 16 16

Inventory days 9 9 8 9 9

Creditor days 26 48 50 50 50

Working capital days 6 -22 -25 -24 -24

Solvency

Total Debt / Equity 0.0 0.0 0.0 0.0 0.0

Interest coverage 62 658 552 0.0 0.0

Valuation Ratios

EV/EBITDA 9.7 14.0 17.0 13.6 11.1

P/E 17.4 23.2 26.5 21.9 18.8

P/B 3.1 4.7 5.4 4.4 3.7

Cash Flow (INR Crores) FY16 FY17 FY18 FY19E FY20E

PBT 687 904 1,098 1,322 1,546

Operating profit before working capital changes 781 972 1,216 1,450 1,705

Operating profit after working capital changes 841 1216 939 1630 1703

Less income tax paid -187 -269 -362 -444 -522

Cash Flow from Operating 653 948 578 1186 1182

(Incr)/ Decr in Gross PP&E -232 -271 -315 -458 -461

Purchase of long term investment -10 0 -60 11 -20

Cash Flow from Investing -175 -1114 -310 -374 -405

Dividend paid -101 -160 -173 -160 -160

Finance costs -10 -1 -2 -2 -2

Cash Flow from Financing -256 -161 -175 -162 -162

Incr/(Decr) in Balance Sheet Cash 223 -328 93 649 614

Cash at the Start of the Year 231 453 126 218 867

Cash at the End of the Year 453 126 218 867 1481





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Disclaimer:This report has been prepared by Nalanda Securities Pvt. Ltd(“NSPL”) and published in accordance with the provisions of Regulation 18 of the Securities and Exchange Board ofIndia (Research Analysts) Regulations, 2014, for use by the recipient as information only and is not for circulation or public distribution. NSPL includes subsidiaries, group andassociate companies, promoters, directors, employees and affiliates. This report is not to be altered, transmitted, reproduced, copied, redistributed, uploaded, published or madeavailable to others, in any form, in whole or in part, for any purpose without prior written permission from NSPL. The projections and the forecasts described in this report arebased upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. Projections and forecasts are necessarily speculativein nature, and it can be expected that one or more of the estimates on which the projections are forecasts were based will not materialize or will vary significantly from actualresults and such variations will likely increase over the period of time. All the projections and forecasts described in this report have been prepared solely by authors of this reportindependently. None of the forecasts were prepared with a view towards compliance with published guidelines or generally accepted accounting principles.This report should not be construed as an offer to sell or the solicitation of an offer to buy, purchase or subscribe to any securities, and neither this report nor anything containedtherein shall form the basis of or be relied upon in connection with any contract or commitment whatsoever. It does not constitute a personal recommendation or take intoaccount the particular investment objective, financial situation or needs of individual clients. The research analysts of NSPL have adhered to the code of conduct under Regulation24 (2) of the Securities and Exchange Board of India (Research Analysts) Regulations, 2014. The recipients of this report must make their own investment decisions, based on theirown investment objectives, financial situation or needs and other factors. The recipients should consider and independently evaluate whether it is suitable for its/ his/ her/theirparticular circumstances and if necessary, seek professional / financial advice as there is substantial risk of loss. NSPL does not take any responsibility thereof. Any such recipientshall be responsible for conducting his/her/its/their own investigation and analysis of the information contained or referred to in this report and of evaluating the merits and risksinvolved in securities forming the subject matter of this report. The price and value of the investment referred to in this report and income from them may go up as well as down,and investors may realize profit/loss on their investments. Past performance is not a guide for future performance. Actual results may differ materially from those set forth in theprojection.Except for the historical information contained herein, statements in this report, which contain words such as ‘will’, ‘would’, etc., and similar expressions or variations of suchwords may constitute ‘forward‐looking statements’. These forward‐looking statements involve a number of risks, uncertainties and other factors that could cause actual results todiffer materially from those suggested by the forward‐looking statements. Forward‐looking statements are not predictions and may be subject to change without notice. NSPLundertakes no obligation to update forward‐looking statements to reflect events or circumstances after the date thereof. NSPL accepts no liabilities for any loss or damage of anykind arising out of use of this report.This report has been prepared by NSPL based upon the information available in the public domain and other public sources believed to be reliable. Though utmost care has beentaken to ensure its accuracy and completeness, no representation or warranty, express or implied is made by NSPL that such information is accurate or complete and/or isindependently verified. The contents of this report represent the assumptions and projections of NSPL and NSPL does not guarantee the accuracy or reliability of any projection,assurances or advice made herein. Nothing in this report constitutes investment, legal, accounting and/or tax advice or a representation that any investment or strategy is suitableor appropriate to recipients’ specific circumstances. This report is based / focused on fundamentals of the Company and forward‐looking statements as such, may not match witha report on a company’s technical analysis report. This report may not be followed by any specific event update/ follow‐up.

Following table contains the disclosure of interest in order to adhere to utmost transparency in the matter;

Disclosure of Interest Statement

Details of Nalanda Securities Pvt. Limited (NSPL)

• NSPL is a Stock Broker registered with BSE, NSE and MCX ‐ SX in all the major segments

viz. Cash, F & O and CDS segments. Further, NSPL is a Registered Portfolio Manager and

is registered with SEBI

• SEBI Registration Number: INH000004617

Details of Disciplinary History of NSPL No disciplinary action is / was running / initiated against NSPL

Research analyst or NSPL or its relatives'/associates' financial interest in the

subject company and nature of such financial interest

No (except to the extent of shares held by Research analyst or NSPL or its

relatives'/associates')

Whether Research analyst or NSPL or its relatives'/associates' is holding the

securities of the subject companyNO

Research analyst or NSPL or its relatives'/associates' actual/beneficial

ownership of 1% or more in securities of the subject company, at the end of

the month immediately preceding the date of publication of the document

NO

Research analyst or NSPL or its relatives'/associates' any other material

conflict of interest at the time of publication of the documentNO

Has research analyst or NSPL or its associates received any compensation

from the subject company in the past 12 monthsNO

Has research analyst or NSPL or its associates managed or co‐managed public

offering of securities for the subject company in the past 12 monthNO

Has research analyst or NSPL or its associates received any compensation for

investment banking or merchant banking or brokerage services from the

subject company in the past 12 months

NO

Has research analyst or NSPL or its associates received any compensation for

products or services other than investment banking or merchant banking or

brokerage services from the subject company in the past 12 months

NO

Has research analyst or NSPL or its associates received any compensation or

other benefits from the subject company or third party in connection with the

document.

NO

Has research analyst served as an officer, director or employee of the subject

companyNO

Has research analyst or NSPL engaged in market making activity for the

subject companyNO

Other disclosures NO

Rating Legend

Strong Buy More than 15%

Buy 5% - 15%

Hold 0 – 5%

Reduce -5% - 0

Sell Less than -5%

Indraprastha Gas Ltd

Date CMP (INR) Target Price (INR) Recommendation

November 12, 2018 275 363 Strong Buy

August 13, 2018 290 384 Strong Buy









strong buy indraprastha gas...

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