1QFY2014 Result Update | Oil & Gas

August 13, 2013

Indraprastha Gas
Performance Highlights
Quarterly Performance (Standalone) 1QFY2014 1QFY2013 Y/E March (` cr) Net sales EBITDA EBITDA margin (%) PAT
Source: Company, Angel Research % chg (yoy) 4QFY2013 % chg (qoq)

NEUTRAL
CMP Target Price
Investment Period
18.7 8.2 (209)bp 3.6 882 186 21.1 84 2.3 4.2 39bp 3.9

`266 -

903 194 21.5 88

760 179 23.6 85

Stock Info Sector Market Cap (` cr) Net Debt (`cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Oil & Gas 3,723 156 0.6 329/238 117,514 10 18,947 5,612 IGAS.BO IGL@IN

Indraprastha Gas (IGL)s 1QFY2014 top-line grew by 18.7% yoy. However, EBITDA and PAT grew by only 8.2% yoy and 3.6% yoy on account of higher RLNG costs and taxes. We maintain our Neutral recommendation on the stock. Top-line growth driven by both volume and realizations: The companys net sales grew by 18.7% yoy to `903cr, mainly driven by increases in both, sales volumes as well as realization. CNG and PNG volumes increased by 4.4% and 7.5% yoy to 191mn kg and 86mmscm, respectively. Average CNG realization increased 12.5% yoy to `39.5/kg, whereas average PNG realization increased by 12.8% yoy to `28.2/scm. OPM contracts on cost pressures: Cost of goods sold increased by 21.6% yoy to `596cr, mainly on account of higher RLNG costs. Hence, despite higher growth in net sales, the EBITDA grew by only 8.2% yoy to `194cr in 1QFY2014. The EBITDA margin slipped 209bp yoy to 21.5% in 1QFY2014. Further, higher depreciation expenses (+24.4% yoy) and higher tax outgo led to the net profit growing by only 3.6% yoy to `88cr. Outlook and valuation: IGL has frequently raised prices of CNG and PNG. However, as the proportion of costly gas is expected to increase, we expect the companys margin growth to remain muted in the years ahead. Further, the recent proposal to cap gas marketing margin by PNGRB remains an overhang on the stock. On the valuation front, at the current level, the stock is trading at 10.3x and 9.9x FY2014E and FY2015E earnings, respectively. We maintain our Neutral rating on the stock. Key financials (Standalone)
Y/E March (` cr) Net sales % chg Net profit % chg OPM (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x) FY2012 2,519 44.2 306 18.0 25.2 21.9 12.2 3.0 27.5 31.4 1.6 6.3 FY2013E 3,365 33.6 354 15.5 22.5 25.3 10.5 2.5 26.0 31.4 1.1 5.1 FY2014E 3,656 8.7 360 1.7 21.5 25.7 10.3 2.1 22.1 27.6 1.0 4.8 FY2015E 4,456 21.9 375 4.2 18.6 26.8 9.9 1.8 19.6 26.5 0.8 4.5

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 45.0 14.9 19.6 20.5

Abs. (%) Sensex IGL

3m (5.8) (10.8)

1yr 7.9 5.6

3yr 4.8 (12.6)

Bhavesh Chauhan
Tel: 022 3935 7800 Ext: 6821 bhaveshu.chauhan@angelbroking.comeepak.par

Vinay Rachh
Tel: 022- 39357600 Ext: 6841 Vinay.rachh@angelbroking.com

Source: Company, Angel Research: Note CMP as of 12th August 2013

Please refer to important disclosures at the end of this report

Indraprastha Gas | 1QFY2014 Result Update

Exhibit 1: 1QFY2014 performance (Standalone)

Y/E March (` cr) Total Operating Income COGS Total operating expenditure EBITDA EBITDA Margin (%) Other Income Depreciation Interest PBT PBT Margin (%) Total Tax % of PBT PAT PAT Margin (%)
Source: Company, Angel Research

1QFY2014 903 596 709 194 21.5 4 53 13 132 14.6 44 33.5 88 9.7

1QFY2013 760 490 581 179 23.6 3 43 16 124 16.3 40 31.9 85 11.1

% chg (yoy) 18.7 21.6 22.0 8.2 21.3 24.4 (17.5) 6.1 11.6 3.6

4QFY2013 882 585 696 186 21.1 3 49 13 128 14.5 44 34.1 84 9.6

% chg (qoq) 2.3 1.8 1.8 4.2 22.1 8.8 2.4 3.0 1.4 3.9

FY2013 3,365 2,197 412 758 22.5 13 187 56 528 15.7 174 33.0 354 10.5

FY2012 2,519 1,539 345 641 25.5 7 143 48 450 17.9 144 31.9 306 12.2

% chg (yoy) 33.6 42.7 19.4 18.2 91.6 30.3 17.4 17.3 21.2 15.5

Net sales up 18.7% yoy: The companys net sales grew by 18.7% yoy to `903cr, mainly driven by increases in both, sales volumes as well as realization. CNG and PNG volumes increased by 4.4% and 7.5% yoy to 191mn kg and 86mmscm, respectively. Average CNG realization increased 12.5% yoy to `39.5/kg, whereas average PNG realization increased by 12.8% yoy to `28.2/scm.

Exhibit 2: CNG volumes stood at 191mn kg

200 195 190 194 194 191 187 183 180 180 45 40 35 30 25 20 15 10 5 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 CNG volumes Gross realization-RHS

Exhibit 3: PNG volume stood at 86mmscm

100 90 80 70 71 78 80 81 84 88 86 30 25

185 180 175 170

( ` per kg)

(mmscm)

(mn kg)

60 50 40 30 20 10 0 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 PNG volumes Gross realization-RHS

15 10 5 0

Source: Company, Angel Research

Source: Company, Angel Research

August 13, 2013

( ` per scm)

20

Indraprastha Gas | 1QFY2014 Result Update

Exhibit 4: Net sales grew by 18.7% yoy

1,000 900 800 700 600 500 400 300 200 100 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 Net sales
Source: Company, Angel Research

720 663

760

855

869

882

903

50.0 45.0 40.0 35.0 30.0 20.0 15.0 10.0 5.0 -

(` cr)

Net sales growth (RHS)

OPM contracts to 21.5%: The cost of goods sold increased by 21.6% yoy to `596cr, mainly on account of higher RLNG costs. Hence, despite higher growth in net sales, the EBITDA grew only by 8.2% yoy to `194cr in 1QFY2014. The EBITDA margin slipped 209bp yoy to 21.5% in 1QFY2014. Further, depreciation expenses increased 24.4% yoy to `53cr in 1QFY2014 and tax rate also increased to 33.5% compared to 31.9% in 1QFY2013. Hence, net profit grew by only 3.6% yoy to `88cr.

Exhibit 5: Operating performance trend

250 200 150 22.7 23.7 23.6 24.2 21.7 21.1 26.0 21.5 24.0 22.0 20.0

Exhibit 6: PAT growth trend

120 100 18.9 80 20.0 15.0 10.0 2.9 5.7 2.6 3.6 5.0 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 PAT PAT growth (RHS) 26.0 28.5 30.0 25.0

( ` cr)

( ` cr)

(%)

18.0 100 50 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 Operating Profit Operating Margins (RHS) 16.0 14.0 12.0 10.0

60 40 20 -

Source: Company, Angel Research

Source: Company, Angel Research

August 13, 2013

(%)

(%)

25.0

Indraprastha Gas | 1QFY2014 Result Update

Investment arguments
Volume growth to continue: IGL has exhibited strong volume growth over the past few years. We expect the trend to continue going ahead, given that penetration of CNG vehicles in Delhi is still at lower levels and the launch of newer CNG-variant cars by automotive companies could keep conversions in the high growth orbit. The PNG segment is also expected to continue its robust performance on account of lower penetration in NCR while demand remains high. The company continues to focus on the fast-growing PNG segment. Regulatory overhang to persist: After the verdict of Delhi HC, the companys marketing margin remains outside the purview of PNGRB. However, PNGRB has indicated that it aims to regulate the marketing margins charged by the utilities. This could potentially impact IGLs margins adversely in case there is a cap on network tariff and/or marketing margin.

Outlook and valuation

IGL has frequently raised prices of CNG and PNG. However, as the proportion of costly gas is expected to increase, we expect the companys margin growth to remain muted in the years ahead. Further, the recent proposal to cap gas marketing margin by PNGRB remains an overhang on the stock. On the valuation front, at the current level, the stock is trading at 10.3x and 9.9x FY2014E and FY2015E earnings, respectively. We maintain our Neutral rating on the stock.

Exhibit 7: Key assumptions

Particulars CNG volumes (mmscm) PNG volumes (mmscm)
Source: Company, Angel Research

FY2014E 1,023 434

FY2015E 1,091 542

Exhibit 8: Angel EPS forecast vs Consensus

Year FY2014E FY2015E
Source: Company, Angel Research

Angel 25.7 26.8

Bloomberg consensus

Variation (1.5) (3.2)

26.1 27.7

Exhibit 9: Recommendation summary

Company IGL CMP (`) 266 53 226 TP (`) 68 Neutral Buy Neutral Reco. Mcap Upside (` cr) 3,723 3,002 2,808 (%) 28 P/E (x) FY14E 10.3 5.3 10.0 FY15E 9.9 4.7 9.8 P/BV (x) FY14E 2.1 0.8 2.7 FY15E 1.8 0.7 2.4 EV/EBITDA (x) FY14E 4.8 2.2 5.7 FY15E 4.5 1.7 4.9 RoE (%) FY14E 22.1 17.3 28.2 FY15E 19.6 16.8 25.6 RoCE (%) FY14E FY15E 27.6 19.1 25.0 26.5 19.1 23.3

GSPL Guj. Gas

Source: Angel Research

August 13, 2013

Indraprastha Gas | 1QFY2014 Result Update

Exhibit 10: One-year forward P/E

600 500

Share price (` )

400 300 200 100 0

Aug-09

Aug-10

Aug-11

Aug-12

Nov-08

Nov-09

Nov-10

Nov-11

May-09

May-10

May-11

May-12

Nov-12

7x
Source: Bloomberg, Angel Research

10x

13x

16x

19x

Company background
Incorporated in 1998, IGL is in the retail gas distribution business of supplying CNG to transport sector, and PNG to domestic, industrial and commercial sectors in Delhi and NCR. IGL started its operations in NCT of Delhi in 1999 with only 9 CNG stations and 1000 PNG consumers. Currently, IGL has 280 CNG stations, 310,000 residential consumers, and 730 industrial customers.

May-13

August 13, 2013

Aug-13

Feb-09

Feb-10

Feb-11

Feb-12

Feb-13

Indraprastha Gas | 1QFY2014 Result Update

Profit & Loss Statement (Standalone)

Y/E March (` cr) Net Sales Other operating income Total operating income % chg Total Expenditure Purchase of gas Staff expenditure Other operating expenditure EBITDA % chg (% of Net Sales) Depreciation and amort. EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Share in profit of Associates Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earnings of asso. Less: Minority interest (MI) Prior period items PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg
previous year numbers

FY2010 FY2011 FY2012 FY2013 FY2014E FY2015E 1,078 1,078 26.4 697 495 31 172 381 26.9 35.3 77 303 30.4 28.1 21 6.5 324 25.3 324 109 33.6 215 215 215 24.9 20.0 15.4 15.4 24.9 1,746 1,746 62.0 1,252 984 38 230 494 29.8 28.3 103 391 29.0 22.4 13 7 1.9 (1.0) 386 18.9 (1) 387 126 32.6 260 260 260 20.5 14.9 18.6 18.6 20.5 2,519 2,519 44.2 1,884 1,539 44 301 635 28.4 25.2 143 491 25.5 19.5 48 7 1.5 450 16.7 450 144 31.9 306 306 306 18.0 12.2 21.9 21.9 18.0 3,365 3,365 33.6 2,609 2,197 57 355 756 19.1 22.5 187 569 15.8 16.9 56 13 2.4 526 16.8 526 174 33.1 354 354 354 15.5 10.5 25.3 25.3 15.5 3,656 3,656 8.7 2,870 2,439 70 361 786 4.1 21.5 218 568 (0.2) 15.5 48 17 3.2 537 2.2 537 177 33.0 360 360 360 1.7 9.8 25.7 25.7 1.7 4,456 4,456 21.9 3,629 3,128 81 420 827 5.2 18.6 250 578 1.7 13.0 35 18 3.2 560 4.2 560 185 33.0 375 375 375 4.2 8.4 26.8 26.8 4.2

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

August 13, 2013

Indraprastha Gas | 1QFY2014 Result Update

Balance Sheet (Standalone)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Minority Interest Total Loans Other Long term liabilities Long term Provisions Net Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Long term loans and adv. Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets
previous year numbers

FY2010 140 685 825 55 24 904 1,105 454 651 183 17 257 121 69 67 204 53 904

FY2011 140 863 1,003 282 117 4 41 1,447 1,716 557 1,159 327 42 39 199 17 57 124 319 (120) 1,447

FY2012 140 1,088 1,228 389 5 63 1,685 2,266 688 1,579 375 98 5 264 32 56 177 637 (372) 1,685

FY2013 FY2014E 140 1,353 1,493 349 8 84 1,934 2,719 872 1,847 291 143 6 341 51 60 230 693 (352) 1,934 140 1,629 1,769 320 8 84 2,181 3,119 1,090 2,029 300 143 6 423 149 60 215 719 (296) 2,181

FY2015E 140 1,920 2,060 30 8 84 2,182 3,569 1,340 2,229 200 143 6 391 80 60 250 786 (395) 2,182

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

August 13, 2013

Indraprastha Gas | 1QFY2014 Result Update

Cash Flow Statement (Standalone)

Y/E March (` cr) Profit before tax Depreciation Dep. accepted during the year Change in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances
previous year numbers

FY2010 FY2011 FY2012 324 77 29 25 (21) (106) 328 (389) 87 21 (281) (73) 1 (72) (25) 146 138 386 103 62 (9) (6) (114) 421 (771) (6) (748) 345 (73) 262 (79) 138 59 450 143 107 69 (7) (150) 612 (599) 7 (606) 107 (70) (131) 65 71 59 130

FY2013 FY2014E FY2015E 528 187 (40) 145 (13) (163) 643 (368) 13 (362) (40) (77) 8 (218) 63 130 194 537 218 (29) 103 (17) (162) 650 (409) 17 (391) (29) (84) (77) 182 194 375 560 250 (290) 334 (18) (162) 673 (350) 18 (332) (290) (84) (325) 16 375 391

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

August 13, 2013

Indraprastha Gas | 1QFY2014 Result Update

Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV/Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis (%) EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT/Int.)
comparable with previous year ratios

FY2010 FY2011 FY2012 17.3 12.7 4.5 1.9 3.4 9.6 4.0 15.4 15.4 20.9 5.0 59.0 28.1 66.4 1.8 33.5 33.5 38.1 64.7 28.6 1.1 9 11 56 (18) (0.1) (0.2) 14.3 10.3 3.7 1.9 2.3 8.0 2.7 18.6 18.6 25.9 5.0 71.7 22.4 67.3 1.6 24.7 24.7 33.6 48.3 28.4 1.2 7 11 53 (21) 0.2 0.5 29.7 12.2 8.3 3.0 1.9 1.6 6.3 2.4 21.9 21.9 32.1 5.0 87.7 19.5 67.0 1.7 22.4 22.4 31.4 43.9 27.5 1.3 5 15 77 (39) 0.2 0.4 10.3

FY2013 FY2014E FY2015E 10.5 6.9 2.5 2.1 1.1 5.1 2.0 25.3 25.3 38.6 5.5 106.6 16.9 67.0 2.0 23.1 23.1 31.4 43.3 26.0 1.3 4 17 81 (44) 0.1 0.2 10.1 10.3 6.4 2.1 2.3 1.0 4.8 1.7 25.7 25.7 41.3 6.0 126.4 15.5 67.0 2.0 21.0 21.0 27.6 37.4 22.1 1.3 5 16 78 (42) 0.0 0.0 11.8 9.9 6.0 1.8 2.3 0.8 4.5 1.7 26.8 26.8 44.7 6.0 147.2 13.0 67.0 2.3 20.1 20.1 26.5 34.5 19.6 1.3 6 12 67 (38) (0.1) (0.2) 16.5

Note: Some of the figures from FY2011 onwards are reclassified; hence some ratios may not be

August 13, 2013

Indraprastha Gas | 1QFY2014 Result Update

Research Team Tel: 022 - 3935 7800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Pvt. Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions 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. 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, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Pvt. Limited endeavours 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. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Pvt. Limited and its 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 companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

IGL No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns) :

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

August 13, 2013

10