Strengthen Your Portfolio With IGL
Indraprastha Gas Limited (IGL)
Since the natural gas industry in India is likely to grow faster in the coming years due to the push given by the government to make India a gas-based economy, one of the benefactors will be Indraprastha Gas Limited.
Indraprastha Gas Limited (IGL) is a city gas distribution company. It is a joint venture promoted by GAIL (India) Limited and Bharat Petroleum Corporation Limited (BPCL). The government of the National Capital Territory (NCT) of Delhi is also a stakeholder with 5 per cent equity. The company supplies compressed natural gas (CNG), a gaseous fuel that includes a mixture of hydrocarbons, primarily methane, to the transport sector and piped natural gas (PNG) to the domestic, industrial and commercial sectors in the NCT of Delhi, Noida, Greater Noida, Ghaziabad, Gurugram, Meerut (except areas already authorised), Shamli, Muzaffarnagar, Karnal and Rewari.
It also offers PNG, which includes methane-CH4, as well as other hydrocarbons. Thus, it has approximately 340 CNG stations spread all around the NCT of Delhi and in NCR. Additionally, the company provides PNG connections to over 6.36 lakh domestic households and approximately 2,630 commercial and industrial customers. IGL has two associates which also operate as CGD companies. Central UP Gas Limited (CUGL) caters to the cities of Kanpur Bareilly, Unnao and Jhansi in Uttar Pradesh and Maharashtra Natural Gas Limited (MNGL) caters to the city of Pune and nearby areas of Pimpri, Chinchwad, Chakan, Talegaon and Hinjewadi in the state of Maharashtra.
Industry Overview The net production of domestic natural gas witnessed a growth of 1.02 per cent from 31,731 mmscm in FY18 to 32,056 mmscm in FY19. Total import of LNG during FY19 saw an increase of 4.56 per cent to 28,692 mmscm from 27,439 mmscm in the previous fiscal year. Recently, the share of import of LNG has shown an upward trend over the years and constitutes almost half of the total consumption of gas in the country. The major sectors which are responsible for contribution towards growth of natural gas are power, fertilisers, steel, petrochemical and the CGD industry. Looking ahead, the natural gas industry in India is likely to grow faster in the coming years due to the push given by the government to make India a gas-based economy. CGD is currently emerging as one of the fastest growing sectors in India. The Government of India has given a thrust to this sector by pushing expansion of the CGD network across the country. According to sector experts, it is expected that the total investment for setting up CGD networks under the 9th and 10th bidding rounds to be more than Rs.100,000 crore in the next eight years. Hence, it is also anticipated that such CGD bidding rounds will create employment generation potential for around 3 lakh persons in skilled, semi-skilled and non-skilled categories.
With the rapid spread of coronavirus, the Government of India has put the country under a lockdown of 21 days, shutting a majority of manufacturing facilities. In India, a majority of LNG is used for power production; thus, with a drop in demand for power, India’s gas demand is expected to drop significantly by the end of the lockdown. Previously, India’s oil ministry had taken considerable efforts in pushing for switching from oil to gas in order to reduce crude import dependency by replacing naphtha in petrochemical production, furnace oil in industrial heating and petrol and diesel in transportation. But a major plummeting of crude prices has brought them close to that of natural gas, thus allowing various industries to prefer petroleum fuels over gas.
CGD is currently emerging as one of the fastest growing sectors in India. The Government of India has given a thrust to this sector by pushing expansion of the CGD network across the country.
Financials On a quarterly consolidated front, the company reported net sales of Rs.1,837.39 crore in the quarter ended December 2019, up by 10.24 per cent from Rs.1,666.68 crore reported in the quarter ended December 2018. Operating profit in Q3FY20 was recorded at Rs.429.36 crore, which is an increase by 21.4 per cent from Rs.353.66 crore reported in Q3FY19. The company gained net profit of Rs.267.93 crore in Q3FY20, clocking a growth of 42.6 per cent from Rs.187.89 crore reported in Q3FY19.
On the annual front, net sales grew by 26.86 per cent in FY19 to Rs.6,361.87 crore from Rs.5,014.90 crore in FY18. The company reported an operating profit of Rs.1,385.43 crore in FY19, increasing by 14.78 per cent from Rs.1,207.03 crore in FY18. Consequently, the net profit for FY19 came in at Rs.755.14 crore in FY19, witnessing a growth of 16.21 per cent as compared to Rs.649.83 crore gained in the previous fiscal year. Earnings per share of IGL showed a growth rate of 17.33 per cent from Rs.9.58 in FY18 to Rs.11.24 in FY19. The company has reported itself to be debt-free as of March 31, 2019.
Segment-Wise Performance Compressed Natural Gas (CNG): IGL gains majority of its revenue from the sale of CNG which amounted to Rs.4,761 crore in FY19, registering a growth of 24 per cent over the previous fiscal year. IGL has around 500 stations through which it provides gas to 10.7 lakh vehicles, reporting average sales of 31.34 lakh kg per day during FY19. For Q3FY20, CNG reported a sales value of Rs.1,381.94 crore, expanding by 11 per cent from Rs.1,247.65 reported in Q3FY19.
Piped Natural Gas (PNG): As for PNG, the total sales grew by 35 per cent to Rs.1,576 crore in FY19 from Rs.1,165 crore in FY18. Sales volume of PNG increased from 479 mmscm in FY18 to 553 mmscm in FY19, growing at a rate of 15.45 per cent. IGL has provided around 2.10 lakh new PNG connections during FY19 alone. As on March 31, 2019, the company stated that PNG connections were provided to 11.02 lakh households and 4,276 commercial and industrial consumers. Hence, IGL’s pipeline infrastructure expanded from 11,673 km in FY18 to 13,028 km in FY19. For Q3FY20, the company reported an increase of 9 per cent in sales volume to Rs.449.22 crore from Rs.412.92 crore reported in Q3FY19.
Conclusion Recently, rating agency CARE Ratings reaffirmed its rating for IGL’s long-term instruments to CARE AAA with a ‘stable’ outlook on the basis of a strong financial risk profile which is marked by healthy profitable margins, strong solvency and liquidity positions. IGL is promoted by GAIL, which is one of the largest natural gas transmission companies in India, and BPCL, which is one of the leading oil refining and marketing companies in India. Since this is the case, IGL receives immense technical, managerial and operational support as well as operational synergies from its promoters.
The company has been able to rapidly improve its infrastructure base to cater to an increasing number of customers as the government continues to actively push for shifting to the use of cleaner fuel resources, which is natural gas. IGL is currently investing about Rs.30 billion over the next three years for upgrading its CGD assets. Capex on new gas supply agreements of Rs.22 billion is estimated to be done by the company in the next six years. Additionally, IGL will benefit from increased growth by its two profit-making unlisted companies, namely, Maharashtra Natural Gas Limited (MNGL) and Central UP Gas Limited (CUGL). IGL is also studying the possibility of setting up of charging stations for electronic vehicles (EVs) which will aid the company’s future growth.
Currently, regulatory risks stand as a threat for the company. Petroleum and Natural Gas Regulatory Board (PNGRB), which was set up in 2007 by GOI, is the regulating body of CGD business in India. Hence, all the CGD players are subject to the regulations of PNGRB. As a result, similar to other CGD companies, IGL’s operating margin is vulnerable to the mix of APM gas allocation available as well as costlier imported gas used in its product mix. Any increase in APM price leads to an impact on margins.
Despite the current economic situation which has worsened due to the pandemic trigger, it is expected that gas demand will return to normalcy and will witness growth once the economy begins to recover, which may take a time period of six months to one year, according to market experts. Looking forward, IGL is expected to have a favourable demand outlook and growth prospects for its CNG and PNG segments since it has been able to experience growth in both the segments and also has a monopoly. Hence we recommend a BUY.