1

SYNOPSIS

Indraprastha Gas (IGL), incorporated in 1998, is engaged in distribution of Compressed Natural Gas (CNG) and Piped Natural Gas (PNG) in Delhi.

The Company has strongly established itself in NCT of Delhi and NCR towns.

Net Sales and PAT of the company are expected to grow at a CAGR of 31% and 21% over 2009 to 2012E respectively.

The company started with 9 CNG stations and 1000 PNG consumers. Today, the company has crossed 163 CNG stations and 1,22,000 domestic and 300 commercial PNG customers.

IGL has tied up its future gas requirements by signing Gas Sale Agreements with GAIL, BPCL and RIL.

The Ministry of Petroleum & Natural Gas has authorized Indraprastha Gas to lay, build, operate or expand city gas distribution network in geographical area of Ghaziabad.

The Company has posted a net profit after tax of Rs 671.91 million for the quarter ended December 31, 2010 as compared to Rs 589.3 million for the quarter ended December 31, 2009.

Years Net sales EBITDA Net Profit EPS P/E

FY 10 10838.37 4018.90 2154.96 15.39 19.23

FY 11E 17013.24 5015.82 2613.95 18.67 15.85

FY 12E 19395.09 5714.52 3063.34 21.88 13.53

Stock Data:

Sector: Oil & Gas

Face Value Rs. Rs.10.00

52 wk. High/Low (Rs.) 374.00/192.10

Volume (2 wk. Avg.) 21000

BSE Code 532514

Market Cap (Rs.In mn) 41440.00

Share Holding Pattern

1 Year Comparative Graph

Indraprastha Gas Ltd BSE SENSEX

C.M.P: Rs.296.00 Target Price: Rs.345.00

Date:31st Jan 2011 BUY

INDRAPRASTHA GAS LTD

Result Update: Q3 FY 11

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Peer Group Comparison

Name of the company CMP(Rs.) Market

Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Indraprastha Gas 296.00 41440.00 15.39 19.23 5.02 45.00

Gail India 471.05 597516.3 29.08 16.20 3.56 75.00

Gujarat Gas 349.15 44778.5 17.39 20.08 6.07 400.00

Gujarat State Pet 102.00 57382.0 7.46 13.67 3.67 10.00

Investment Highlights

Q3 FY11 Results Update

Indraprastha Gas Ltd disclosed results for the quarter ended December 2010. Net

sales for the quarter moved up 60% to Rs.4570.93 million as compared to

Rs.2863.03 million during the corresponding quarter last year. During the

quarter, the company has reported Net Profit increased to Rs. 671.91 million from

Rs.589.33 million in previous year same quarter. The Basic EPS of the company

stood at Rs.4.80 for the quarter ended December 2010.

Quarterly Results - Standalone (Rs in mn)

As At Dec-10 Dec-09 %change

Net sales 4570.93 2863.03 60%

PAT 671.91 589.33 14%

Basic EPS 4.80 4.21 14%

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Basic EPS of the company stood at Rs. 4.80

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Break up of Expenditure

Expenditure for the quarter stood at Rs.3278.21mn, which is around 81% higher

than the corresponding period of the previous year. Raw material cost of the

company for the quarter accounts for 57% of the sales of the company and stood

at Rs.2598.70mn from Rs.1286.75mn of the corresponding period of the previous

year. Other Expenditure cost increased 29%YoY to Rs.581.34mn from

Rs.449.55mn and accounts for 13% of the revenue of the company for the

quarter.

OPM and NPM for the quarter stood at 28% and 15% respectively from 38% and

21% respectively of the same period of the last year.

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IGL gets permission to expand city gas distribution network

Indraprastha Gas (IGL) has been authorized by Ministry of Petroleum & Natural

Gas to lay, build operate or expand city gas distribution network in the

geographical area of Ghaziabad. The permission was sanctioned on June 29,

2010. Ghaziabad seems to have good potential for city gas business and which will

give a boost to the growth of company.

Indraprastha Gas is responsible for Natural gas retail in NCR (National capital

region) of India. It sells gas as piped natural gas where gas is to be used as a

domestic or industrial fuel and as compressed natural gas in transportation

sector.

Company Profile

Indraprastha Gas (IGL), incorporated in 1998, is engaged in distribution of

Compressed Natural Gas (CNG) and Piped Natural Gas (PNG) in Delhi. In 1999 the

company took over Delhi City Gas Distribution Project from GAIL (India). IGL laid the

network for the distribution of natural gas in the National Capital of Delhi to

consumers in the domestic, transport, and commercial sectors.

The company started with 9 CNG stations and 1000 PNG consumers. Today, the

company has crossed 163 CNG stations and 1,22,000 domestic and 300 commercial

PNG customers.

The company has entered into a joint venture with Siti Energy to set up City Gas

Distribution Projects at Sonepat and Panipat located at Haryana. Indraprastha Gas

was awarded Golden Peacock Eco Innovation Award.

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Company Business

• CNG

The company's core business is to distribute CNG and PNG in Delhi. It has

presence in areas including Sarita Vihar, Jasola, Dwarka , Rohini, Pitampura,

Janakpuri, Maya Enclave, Saket, Hauz Khas, Paschim Vihar, Vikaspuri, Dilshad

Garden and many more.

• R-LNG

The company is also engaged in supplying Re-gassified Liquid Natural Gas (R-

LNG) to 16 industrial consumers. It is further exploring new gas supply sources

under this segment.

Outlook

IGL is planning to infuse Rs 1288 million under CNG segment to expand its presence

in area of NCT of Delhi.

Under PNG segment, the company is planning to spend Rs 633 million for large scale

expansion and it anticipating to provide PNG to additional 50,000 households.

Industrial and commercial segments would be the focus areas for the organization in

the future.

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Financial Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in million) FY09A FY10A FY11E FY12E

12m 12m 12m 12m

Description

Net Sales 8571.24 10838.37 17013.24 19395.09

Other Income 218.67 153.87 29.96 31.76

Total Income 8789.91 10992.24 17043.2 19426.85

Expenditure -5526.97 -6973.34 -12027.38 -13712.33

Operating Profit 3262.94 4018.9 5015.82 5714.52

Interest 0.00 0.00 -100.43 0.00

Gross Profit 3262.94 4018.9 4915.39 5714.52

Depreciation -674.34 -774.52 -1013.88 -1135.54

Profit before Tax 2588.60 3244.38 3901.51 4578.98

Tax -863.86 -1089.42 -1287.56 -1515.64

Profit after Tax 1724.74 2154.96 2613.95 3063.34

Equity Capital 1400.00 1400.00 1400.00 1400.00

Reserves 5434.17 6854.49 9468.44 12531.78

Face Value(Rs.) 10.00 10.00 10.00 10.00

EPS 12.32 15.39 18.67 21.88

*A=Actual, *E=Estimated

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in million) 30-Jun-10 30-Sep-10 30-Dec-10 31-Mar-11

3m(A) 3m(A) 3m(A) 3m(E)

Description

Net Sales 3357.76 4467.91 4570.93 4616.64

Other Income 10.90 5.39 6.70 6.97

Total Income 3368.66 4473.30 4577.63 4623.61

Expenditure -2282.98 -3220.69 -3278.21 -3245.50

Operating Profit 1085.68 1252.61 1299.42 1378.11

Interest 0.00 -20.17 -41.16 -39.10

Gross Profit 1085.68 1232.44 1258.26 1339.01

Depreciation -230.92 -238.89 -261.57 -282.50

Profit before Tax 854.76 993.55 996.69 1056.51

Tax -283.37 -330.76 -324.78 -348.65

Profit after Tax 571.39 662.79 671.91 707.86

Equity Capital 1400.00 1400.00 1400.00 1400.00

Face Value(Rs.) 10.00 10.00 10.00 10.00

EPS 4.08 4.73 4.80 5.06

*A=Actual, *E=Estimated

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Key Ratio

Particulars FY09 FY10 FY11E FY12E

EPS (Rs.) 12.32 15.39 18.67 21.88

EBITDA Margin (%) 38.07% 37.08% 29.48% 29.46%

PAT Margin (%) 20.12% 19.88% 15.36% 15.79%

P/E Ratio (x) 16.05 19.23 15.85 13.53

ROE (%) 25.24% 26.11% 24.05% 21.99%

ROCE (%) 37.88% 39.30% 36.82% 32.87%

EV/EBITDA (x) 8.48 10.31 8.26 7.25

Debt-Equity Ratio 0.00 0.00 0.00 0.00

Book Value (Rs.) 48.82 58.96 77.63 99.51

P/BV 4.05 5.02 3.81 2.97

Charts:

10

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Outlook and Conclusion

At the current market price of Rs.296.00, the stock is trading at 15.85 x FY11E and 13.53 x FY12E respectively.

Price to Book Value of the stock is expected to be at 3.81 x and 2.97 x respectively for FY11E and FY12E.

Earning per share (EPS) of the company for the earnings for FY11E and FY12E is seen at Rs.18.67 and Rs.21.88 respectively.

The Company has strongly established itself in NCT of Delhi and NCR towns.

Net Sales and PAT of the company are expected to grow at a CAGR of 31% and 21% over 2009 to 2012E respectively.

The company started with 9 CNG stations and 1000 PNG consumers. Today, the company has crossed 163 CNG stations and 1,22,000 domestic and 300 commercial PNG customers.

IGL has tied up its future gas requirements by signing Gas Sale Agreements with GAIL, BPCL and RIL.

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The Ministry of Petroleum & Natural Gas has authorized Indraprastha Gas to lay, build, operate or expand city gas distribution network in geographical area of Ghaziabad.

The Company has posted a net profit after tax of Rs 671.91 million for the quarter ended December 31, 2010 as compared to Rs 589.3 million for the quarter ended December 31, 2009.

On the basis of EV/EBITDA, the stock trades at 8.26 x for FY11E and 7.25 x for FY12E.

We expect that the company will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs.345.00 for Medium to Long term investment.

Industry Overview

The oil and gas industry has been instrumental in fuelling the rapid growth of the

Indian economy. India has total reserves of 775 million metric tonnes (MMT) of crude

oil and 1074 billion cubic metres (BCM) of natural gas as on April 1, 2009, according

to the basic statistics released by the Ministry of Petroleum and Natural Gas.

Petroleum exports during 2008-09 were US$ 26.2 billion.

In the eighth round of the NELP (NELP-VIII), 1.62 sq km area will be covered

comprising 70 blocks. Out of 70 blocks, 36 have been awarded under NELP-VIII,

according to the Economic Survey 2009-10.

According to Mr Murli Deora, Union Minister of Petroleum, the ninth round of New

Exploration Licensing Policy (NELP) is likely to be launched in the third quarter of

2010.

Moreover, the government is planning its first ever offer of shale gas exploration in

2012. According to Mr Deora, "Shale gas (gas locked in sedimentary rocks) is an

emerging area. It has become an important source of energy in a few countries who

have been able to commercially exploit this resource."

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Production

By the end of the Eleventh Plan, the refinery capacity is expected to reach 240.96

million metric tonnes per annum (MMTPA).

According to the provisional data released by the Ministry of Petroleum & Natural Gas,

dated June 28, 2010,

• During April-May 2010, crude oil production went up to 5.82 MMT, a 5.5 per

cent increase over the corresponding period in 2009

• During April-May 2010, 26.89 MMT of crude oil was refined, an increase of 8

per cent over the corresponding period in 2009

• During April-May 2010, the actual natural gas production was 9.1 BCM, an

increase of 43.5 per cent over the corresponding period in 2009

Consumption

The sales/consumption of petroleum products during 2008-09 were 133.4 MMT

(including sales through private imports), an increase of 3.45 per cent over sales of

128.95 MMT during 2007-08, according to the Ministry of Petroleum.

The sale of oil products in the country rose 3.8 per cent in April 2010 to 12.13 million

tonne year-on-year.

As per the Ministry of Petroleum, demand for oil and gas is likely to increase from

186.54 million tonnes of oil equivalent (mmtoe) in 2009-10 to 233.58 mmtoe in 2011-

12.

Gas

India's natural gas demand is expected to nearly double to 320 million metric

standard cubic metre per day (mmscmd) by 2015, according to a report released by

global consultancy firm, McKinsey at the VI Asia Gas Partnership Summit.

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According to the report, the current demand of 166 mmscmd—made up of nearly 132

mmscmd supplies from domestic fields and the rest from imported liquefied natural

gas (LNG)—is likely to rise to at least a minimum of 230 mmscmd and a maximum of

320 mmscmd by 2015.

In January 2010, Gas Authority of India Ltd (GAIL) said that gas availability in India is

expected to grow at 23 per cent compounded annual growth rate (CAGR) to 312

mscmd by 2013-14, buoyed by trebling of domestic production to 254 mscmd and

doubling of regasified liquefied natural gas imports to 58 mscmd.

To capture the opportunity presented by the impending gas surge in India, GAIL is

investing significantly in its pipeline network. Over the next three years, it will invest

US$ 660.7 million-US$ 770.8 million, expanding its transmission capacity from the

current 150 mscmd to 300 mscmd.

Moreover, GAIL which has signed a Memorandum of Understanding (MoU) with the

Karnataka government will spend US$ 423.6 million this year to lay the 800-km

pipeline to transport gas from the LNG terminal in Dabhol to Bidadi near Bangalore.

GAIL expects the project to be completed by March 2012.

State-owned Oil and Natural Gas Corp (ONGC) has added 83 million tonnes (MT) of oil

and gas reserves in 2009-10, the highest in two decades.

The ultimate reserve accretion of ONGC including its joint ventures (with firms like

Cairn India) in domestic fields in 2009-10 has been 87.37 MT of oil and oil equivalent

gas against the target of 76.28 million tonnes, as per a press statement by ONGC

ONGC on a standalone basis added 82.98 MT of oil and oil equivalent gas reserves in

2009-10

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Investments and Acquisitions

Mangalore Refinery & Petrochemicals Ltd, (MRPL) has signed an agreement with

State Trading Corporation of Mauritius for the supply of 1.1 (MMT) of petroleum

products per year, with the total value of the deal estimated at US$ 2 billion at

current prices. The products will be supplied for a period of three years

Indian Oil Corporation, along with the Tamil Nadu government is planning to

invest US$ 2.22 billion to set up a gas storage terminal in the state. The

terminal will come up near the Ennore port and will have an installed capacity

of 5 MTPA. The project will also include laying a pipeline network to distribute

20 million cubic feet of gas per day and a power plant.

The three public sector oil companies—Indian Oil Corporation Ltd (IOCL), Oil

India Ltd (OIL), and ONGC Videsh Ltd (OVL)—along with their consortium

partners Spanish major Repsol and Malaysian Petronas, have signed a US$ 20-

billion joint venture agreement for the development of and production from the

Carabobo-1 Project in Orinoco region of Venezuela. The licence term is for 25

years with the potential for a 15-year extension, and the project cost is

estimated at US$ 15-20 billion.

Public sector oil companies will be investing US$ 213.6 million in Kerala over

the next 3-4 years for expanding their marketing network in the State,

according to S. Sundareshan, Secretary, Petroleum and Natural Gas.

Reliance Industries will invest US$ 1.36 billion in shale assets of US-based

Pioneer Natural Resources, for a 45 per cent stake in its Eagle Ford shale

acreage in south Texas.

Mahanagar Gas Ltd (MGL) will invest over US$ 3.36 billion in a span of 5-6

years to lay infrastructure for the supply of both Compressed Natural Gas

(CNG) and Piped Natural Gas (PNG)

The Ruias of Essar Group have injected US$ 293 million in Essar Oil by

subscribing to global depository shares (GDS) to part finance its US$ 1.7-billion

expansion plans. The proposed expansion plan includes scaling up of the

Jamnagar refinery capacity by 25 per cent to 375,000 barrels

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Energy major Reliance Industries gained an overseas foothold by agreeing to

pay US$ 1.7 billion to form a joint venture with U.S.-based Atlas Energy

Gujarat State Petroleum Corporation (GSPC) has inked an agreement with the

Government of Egypt for oil and gas exploration in the African nation where the

Indian firm has been allotted blocks.

Templeton Strategic Emerging Markets Fund (TSEMF) has invested US$ 20.6

million investment in Shiv-Vani Oil & Gas Exploration Services.

Government Initiatives

The government has been taking many progressive measures to create a conducive

policy and regulatory framework for attracting investments.

FDI up to 100 per cent under the automatic route is permitted in exploration

activities of oil and natural gas fields, infrastructure related to marketing of

petroleum products, actual trading and marketing of petroleum products,

petroleum product pipelines, natural gas and LNG pipelines, market study and

formulation and petroleum refining in the private sector. FDI up to 49 per cent

is permitted under the government route in petroleum refining by the public

sector undertakings (PSU) according to the Consolidated Foreign Direct

Investment (FDI) Policy document by the Department of Industrial Policy and

Promotion.

Vision-2015 approved in 2009, for the oil sector which will focus on expanding

the marketing network as well as quality of the products and services to

customers covering four broad areas of LPG (liquefied petroleum gas), kerosene,

auto fuels and compressed natural gas/piped natural gas.

In 2009, the government announced a seven-year tax holiday for commercial

production of gas in respect of contract to be signed under NELP VIII & Coal

Bed Methane (CBM) IV with a view to give a boost to exploration and production

according to a press release by the Ministry of Petroleum and Natural Gas.

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To arrive at a viable and sustainable system of pricing of petroleum products, the

Government had set up an Expert Group and on its recommendation the Government

has decided that the pricing of petrol and diesel both at the refinery gate and the retail

level will be market-determined as per a press release by the Ministry of Petroleum

and Natural Gas.

________________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates 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. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

19

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