2QFY2013 Result Update | Oil & Gas

November 7, 2012

IGL
Performance Highlights
Quarterly Performance (Standalone)
Particulars (` cr) Net sales EBITDA EBITDA margin (%) PAT
2QFY2013 2QFY2012 % chg (yoy) 1QFY2013 % chg (qoq)

NEUTRAL
CMP Target Price
Investment Period
597 158 26.4 77 43.1 30.8 (228)bp 28.5 760 179 23.6 85 12.5 15.2 58bp 17.2

`265 -

855 207 24.2 99

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 3,707 357 0.6 436/170 398,200 10 18,902 5,760 IGAS.BO IGL@IN

Source: Company, Angel Research

Indraprastha Gass (IGL) 2QFY2013 top-line grew by 43.1% yoy. However, EBITDA and PAT grew by only 30.8% yoy and 28.5% yoy on account of higher RLNG and interest costs. Maintain Neutral. Top-line driven by volume and realization growth: The companys net sales grew by 43.1% yoy to `855cr mainly driven by increases in both, sales as well as realization. CNG and PNG volumes increased by 9.2% and 19.4% yoy to 194mn kg and 81mmscm, respectively. Average CNG realisation increased 28.1% yoy to `37.9/kg. OPM contracts on cost pressures: The cost of goods sold increased by 52.5% yoy to `547cr mainly on account of higher RLNG costs. Hence, despite higher growth in net sales, EBITDA grew by only 30.8% yoy to `207cr in 2QFY2013. The EBITDA margin slipped 228bp yoy to 24.2% in 2QFY2013. Further, interest expense stood at `14cr in 2QFY2013, compared to `12cr in 2QFY2012. Hence, net profit grew by only 28.5 % yoy to `99cr. 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 to soften in the years ahead. Further, the recent proposal to cap gas marketing margin by Petroleum and Natural Gas Regulatory Board (PNGRB) remains an overhang on the stock. On the valuation front, at the current level, the stock is trading at 10.9x and 10.3x FY2013E and FY2014E earnings, respectively. We recommend 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)
Source: Company, Angel Research

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 45.0 12.5 16.8 25.7

Abs. (%) Sensex IGL

3m 7.4 8.7

1yr 7.6 (37.0)

3yr 17.0 62.0

FY2011 1,746 62.0 260 20.5 28.3 18.6 14.3 3.7 28.4 33.6 2.3 8.0

FY2012 2,519 44.2 306 18.0 25.2 21.9 12.1 3.0 27.5 29.5 1.6 6.3

FY2013E 3,213 27.6 340 11.0 23.3 24.3 10.9 2.5 25.0 27.8 1.2 5.4

FY2014E 3,643 13.4 360 5.9 23.5 25.7 10.3 2.1 22.1 26.7 1.0 4.6

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

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

Please refer to important disclosures at the end of this report

IGL | 2QFY2013 Result Update

Exhibit 1: 2QFY2013 performance (Standalone)

Particulars (` 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

2QFY2013 855 547 649 207 24.2 3 48 14 148 17.3 49 33.0 99 11.6

2QFY2012 597 358 440 158 26.4 1 34 12 113 19.0 36 31.8 77 12.9

% chg (yoy) 43.1 52.5 47.6 30.8 120.6 38.5 19.4 30.8 35.8 28.5

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

% chg (qoq) 1HFY2013 1HFY2012 12.5 11.6 11.6 15.2 5.3 11.8 (9.5) 19.2 23.6 17.2 1,616 1,037 1,230 386 23.9 6 90 30 272 16.9 89 32.5 184 11.4 1,135 659 819 316 27.9 3 67 21 232 20.4 74 32.1 157 13.9

% chg (yoy) 42.4 57.3 50.2 22.0 126.4 35.6 42.3 17.6 19.0 16.9

Net sales up 43.1% yoy: The companys net sales grew by 43.1% yoy to `855cr mainly driven by increases in both, sales as well as realization. CNG and PNG volumes increased by 9.2% and 19.4% yoy to 194mn kg and 81mmscm, respectively. Average CNG realisation increased 28.1% yoy to `37.9/kg, mainly due to hike in price of CNG from `35.5/kg to `38.4/kg.

Exhibit 2: CNG volumes stood at 194mn kg

250 200 158
(mn kg)

Exhibit 3: PNG volume stood at 81mmscm

45 90 80 70 60
(` per kg)
(mmscm)

161

177

180

180

183

194

40 35 30 25 20 15 10 5 -

78.0 59.1 64.8 68.2 71.1

80.0

81.0

30 25
(` per scm)

150 100 50 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 CNG volumes Gross realization-RHS

20 15 10 5 0

50 40 30 20 10 0 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 PNG volumes Gross realization-RHS

Source: Company, Angel Research

Source: Company, Angel Research

November 7, 2012

IGL | 2QFY2013 Result Update

Exhibit 4: Net sales grew by 43.1% yoy

900 800 700 600 59.8 537 511 45.1 34.0 500 400 300 200 100 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 Net sales
Source: Company, Angel Research

855 76.3 597 663 720 760

90.0 80.0 70.0 60.0 40.0 30.0 20.0 10.0 50.0

(` cr)

43.1

Net sales growth (RHS)

OPM contracts to 24.2%: Cost of goods sold increased by 52.5% yoy to `547cr mainly on account of higher RLNG costs. Hence, despite higher growth in net sales, EBITDA grew by only 30.8% yoy to `207cr in 2QFY2013. The EBITDA margin slipped 228bp yoy to 24.2% in 2QFY2013. Further, interest expense stood at `14cr in 2QFY2013, compared to `12cr in 2QFY2012. Hence, net profit grew by only 28.5 % yoy to `99cr.

Exhibit 5: Operating performance trend

250 200 150 100 50 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 Operating Profit Operating Margins (RHS) 26.9 29.5 26.5 22.7 23.6 23.7 24.2 35.0 30.0 25.0
(%)

Exhibit 6: PAT growth trend

120 100 80 34.2 39.6 28.5 45.0 40.0 35.0 30.0 20.0 15.0 10.0 2.9 5.7 5.0 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 PAT PAT growth (RHS) 25.0

(` cr)

(` cr)

60 40 20 17.8

20.0 15.0 10.0

Source: Company, Angel Research

Source: Company, Angel Research

November 7, 2012

(%)

18.9

(%)

41.0

41.5

IGL | 2QFY2013 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 and higher demand. 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

The company has frequently raised prices of CNG and PNG. However, as the proportion of costly gas is expected to increase, we expect the companys margin to soften 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 10.9x and 10.3x FY2013E and FY2014E 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

FY2013E 1,126 321

FY2014E 1,166 434

Exhibit 8: Angel EPS forecast vs Consensus

Year FY2013E FY2014E
Source: Company, Angel Research

Angel 24.3 25.7

Bloomberg consensus

Variation 9.5 10.9

22.2 23.2

Exhibit 9: Recommendation summary

Company GAIL IGL CMP (`) 366 265 75 300 TP (`) - Neutral - Neutral - Neutral - Neutral Reco. Mcap (` cr) 45,880 3,707 4,203 3,850 Upside (%) P/E (x) FY13E 10.8 10.9 8.5 13.2 FY14E 10.4 10.3 8.9 12.7 P/BV (x) FY13E 1.9 2.5 1.4 4.0 FY14E 1.6 2.1 1.3 3.5 EV/EBITDA (x) FY13E 5.9 5.4 3.9 7.8 FY14E 4.7 4.6 4.0 7.2 RoE (%) FY13E 18.5 25.0 17.9 33.2 FY14E 16.8 22.1 15.0 29.2 RoCE (%) FY13E 19.8 27.8 19.4 29.3 FY14E 18.1 26.7 17.0 27.1

GSPL Guj. Gas

Source: Angel Research

November 7, 2012

IGL | 2QFY2013 Result Update

Exhibit 10: One-year forward P/E

600 500

Share price (`)

400 300 200 100 0

Apr-07

Apr-08

Apr-09

Apr-10

Apr-11

Jul-07

Apr-12

Jul-08

Jul-09

Jul-10

Jul-11

Oct-07

Oct-08

Oct-09

Oct-10

Oct-11

Jul-12

7x

10x

13x

16x

19x

Company background
Incorporated in 1998, IGL is in the retail gas distribution business of supplying CNG to the 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.

November 7, 2012

Oct-12

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

IGL | 2QFY2013 Result Update

Profit & Loss Statement (Standalone)

Y/E March (` cr) Gross sales Less: Excise duty 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 amortization 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 FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E 962 109 853 853 20.8 553 411 24 118 300 0.0 35.2 67 233 (2.0) 27.3 26 10.1 259 (0.8) 259 86 33.4 172 172 172 (1.1) 20.2 12.3 12.3 (1.1) 1,213 135 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 1,954 207 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 2,794 275 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 3,564 351 3,213 3,213 27.6 2,465 2,083 62 320 748 17.9 23.3 196 552 12.4 17.2 58 13 2.5 507 12.6 507 167 32.9 340 340 340 11.0 10.6 24.3 24.3 11.0 4,041 398 3,643 3,643 13.4 2,787 2,386 65 336 856 14.4 23.5 264 592 7.2 16.2 60 14 2.5 546 7.6 546 186 34.0 360 360 360 5.9 9.9 25.7 25.7 5.9

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

November 7, 2012

IGL | 2QFY2013 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 817 378 439 82 104 259 146 55 58 154 106 731 1,105 454 651 183 17 257 121 69 67 204 53 904 1,716 557 1,159 327 42 39 199 17 57 124 319 (120) 1,447 2,266 688 1,579 375 98 5 264 32 56 177 444 (180) 1,878 2,800 884 1,916 320 42 5 304 0 58 245 487 (183) 2,101 3,300 1,148 2,152 300 42 5 367 31 59 277 540 (173) 2,327 140 543 683 27 21 731 140 685 825 55 24 904 140 863 1,003 282 117 4 41 1,447 140 1,088 1,228 389 193 5 63 1,878 140 1,350 1,490 350 193 5 63 2,101 140 1,626 1,766 300 193 5 63 2,327 FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E

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

November 7, 2012

IGL | 2QFY2013 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 FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E 259 67 20 (18) (26) (89) 212 (172) 5 26 (141) (66) (65) 6 140 146 324 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 (84) (131) 65 71 59 130 513 196 (39) 65 (13) (163) 559 (479) 13 (466) (39) (84) 7 (181) (88) 130 42 546 264 (50) 108 (14) (162) 691 (480) 14 (466) (50) (84) 5 (194) 31 42 73

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

November 7, 2012

IGL | 2QFY2013 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) Cost of Debt (Post Tax) Leverage (x) 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.) (0.3) (0.7) (0.1) (0.2) 0.2 0.5 29.7 0.2 0.4 10.3 0.2 0.4 9.6 0.1 0.3 9.9 1.1 10 12 54 (21) 1.1 9 11 56 (18) 1.2 7 11 53 (21) 1.3 5 15 58 (25) 1.3 9 14 57 (22) 1.2 13 12 57 (19) 36.0 71.2 27.4 38.1 64.7 28.6 33.6 48.3 28.4 29.5 40.4 27.5 27.8 35.5 25.0 26.7 32.1 22.1 27.3 66.6 2.1 39.0 39.0 28.1 66.4 1.8 33.5 33.5 22.4 67.3 1.6 24.7 24.7 19.5 67.0 1.6 21.0 21.0 17.2 67.0 1.7 19.4 19.4 16.2 66.0 1.7 18.1 18.1 12.3 12.3 17.1 4.0 48.8 15.4 15.4 20.9 5.0 59.0 18.6 18.6 25.9 5.0 71.7 21.9 21.9 32.1 6.0 87.7 24.3 24.3 38.3 6.0 106.4 25.7 25.7 44.6 6.0 126.2 21.5 15.5 5.4 1.5 4.1 11.6 4.8 17.2 12.7 4.5 1.9 3.4 9.5 4.0 14.3 10.2 3.7 1.9 2.3 8.0 2.7 12.1 8.2 3.0 2.3 1.6 6.3 2.1 10.9 6.9 2.5 2.3 1.2 5.4 1.9 10.3 5.9 2.1 2.3 1.0 4.6 1.7 FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E

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

November 7, 2012

IGL | 2QFY2013 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 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 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 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 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 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 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 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%)

November 7, 2012

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