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INSTITUTIONAL EQUITY RESEARCH
Indraprastha Gas Ltd (IGL IN) The momentum continues
Page | 1 | PHILLIPCAPITAL INDIA RESEARCH
INDIA | OIL & GAS | Company Update
20 January 2017
IGL's MD in a recent media interview stated expectation of 10% yoy volume growth sustaining for the next 2‐3 years with further triggers being, the possibility of a blanket ban on FO and petcoke in NCR satellite towns and bidding for 2‐3 more geographical areas under the 8th round of PNGRB bidding. Considering the multiple triggers for growth, the future outlook for the stock remains positive, notwithstanding premium valuations of 16‐17x FY19E PE, as we see it as a double digit CAGR story. While some EBITDA margin pull‐back is likely compared to 1HFY17 average of Rs 6.3/scm (on the back of expected rise in gas cost and expenses), but considering IGL's past history of pricing actions, we expect margins to stabilise at the upper end of the Rs 5.5‐6/scm guidance. We reiterate our Buy rating on IGL with a revised target price of Rs 1,060/sh (earlier Rs 875). The key risk to our rating is rollback of Government support to the sector which seems unlikely to us. FO, petcoke ban in NCR may happen soon, contributing 3‐4% growth to volumes IGL reiterated the possible ban on FO and petcoke in NCR satellites owing to EPCA's aggressive stance on the same. EPCA has also highlighted the taxation anomaly in UP where polluting FO has low tax incidence while cleaner natural gas is charged higher VAT. The Supreme Court had asked the Centre to examine about the harmful effects of FO and petcoke used in industries and power plants in NCR by February and issue appropriate directions in this regard. EPCA has estimated ~30,000mt of FO being sold monthly in NCR which if replaced entirely amounts to ~0.8mmscmd of industrial PNG. Along with petcoke, total ban may translate into ~1mmscmd of incremental volumes for IGL which may be realisable over 5‐6 years. Hence ~0.2mmscmd volumes could be added annually translating into 3‐4% growth for IGL. PNGRB's 8th Round of CGD bidding can help IGL's northern consolidation Four out of seven GAs offered under PNGRB's 8th round namely Karnal, Ambala & Kurukshetra, Bulandshahr and Bagpat are around Delhi/NCR. IGL plans to bid for 2‐3 GAs which is sensible as these are contiguous areas to IGL. These areas can contribute to both CNG and PNG. Our channel checks suggest 50,000scmd of ready gas demand in these places which can grow at 20% CAGR in the next 5‐6 years thereby entailing over 0.1mmscmd volumes each, hence three GAs can add 1‐2% of growth annually. These areas will also boost IGL's participation in the green corridor policy which would cover Delhi to Chandigarh/Agra/Kanpur/Jaipur/Haridwar highways. IGL aims to get 50% of the highway business generated as such. In Rewari, IGL is setting up two CNG outlets by March 2017. Margins may see some pressure, but IGL's pricing policy is proactive While IGL has reiterated it will pass on higher gas prices to customers, cost pressures would nevertheless intensify. We estimate APM gas prices to bottom out at US$ 2.7‐2.8/mmbtu in 1HFY18 and jump up sharply by US$ 0.8‐1/mmbtu in 2H going by the current international benchmark rates. Additionally, IGL has started providing ~Rs 330 mn for DDA's rental demand. and expects ~Rs 35mn hit from absorbing MDR on card transactions (assumed at 50% of total sales). Both of these have a Rs 0.2/scm impact on margins. While IGL has been proactive in its pricing policy and margin maintenance, EBITDA margin upsides from 1HFY17 rate of Rs 6.3/scm is challenging. Nevertheless, we expect the same stabilising at the upper end of the Rs 5.5‐6/scm guidance. The impact of the NMDC usage charge is also minor at not more than Rs 60‐70mn on future capex, as it is prospective. Reiterate Buy with a revised target price of Rs 1,060/sh We have slightly reduced our FY17 EPS estimate by 4% assuming lower margin from higher LNG prices but maintain our FY18 estimates and introduce FY19 numbers. We up our longer term growth estimates by 1‐2% due to the above mentioned triggers and rollover our DCF to FY19, based on which we revise our target price to Rs 1,060 (from Rs 875). Reiterate Buy.
BUY (Maintain) CMP RS 929 TARGET RS 1,060 (14%) COMPANY DATA O/S SHARES (MN) : 140MARKET CAP (RSBN) : 130MARKET CAP (USDBN) : 1.952 ‐ WK HI/LO (RS) : 960/ 484LIQUIDITY 3M (USDMN) : 8.8PAR VALUE (RS) : 10 SHARE HOLDING PATTERN, % Dec 16 Sep 16 Jun 16PROMOTERS : 45.0 45.0 45.0FII / NRI : 27.6 26.5 25.0FI / MF : 14.1 14.5 16.1NON PRO : 1.0 1.3 1.0PUBLIC & OTHERS : 12.4 12.8 12.8 PRICE PERFORMANCE, %
1MTH 3MTH 1YRABS 2.1 9.2 68.3REL TO BSE ‐1.5 11.6 56.8 PRICE VS. SENSEX
Source: Phillip Capital India Research KEY FINANCIALS (STD) Rs mn FY16 FY17E FY18ENet Sales 36,858 37,965 37,552EBIDTA 7,857 10,040 10,899Net Profit 4,302 5,957 6,568EPS, Rs 30.7 42.6 46.9PER, x 30.2 21.8 19.8EV/EBIDTA, x 16.0 12.1 10.8P/BV, x 5.4 4.6 3.9ROE, % 17.8 21.0 19.9
Source: PhillipCapital India Research Est. Sabri Hazarika (+ 9122 6667 9756) [email protected]
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Apr/15 Oct/15 Apr/16 Oct/16IGL BSE Sensex
INDRAPRASTHA GAS LTD COMPANY UPDATE
FO, petcoke ban in NCR may happen soon, contributing 3‐4% growth to volumes IGL's MD reiterated the possible ban on furnace oil (FO) and petroleum coke in NCR satellites owing to the Environment Pollution (Control and Prevention) Authority's aggressive stance on the same. "EPCA has called for amendments to the 1996 notification that had banned these fuels in Delhi and extend its ambit across NCR. It has recommended that the states in the region adopt policies towards incentivising clean fuel over polluting fuel". (http://www.thehindubusinessline.com/companies/igl‐looking‐to‐diversify‐beyond‐cng‐and‐png/article9485561.ece) (http://indianexpress.com/article/india/industries‐across‐ncr‐using‐sulphur‐heavy‐fuel‐epca‐4409628/) The Supreme Court hearing this matter had asked the Central Government to examine about the harmful effects of FO and petcoke used in industries and power plants in NCR and issue appropriate directions in this regard. The hearing conducted in December gave the centre over a month and next hearing is on February 6. As per latest reports, the Centre informed the court that consultations among all stakeholders (CSIR, MOPNG, TERI, National Physical Laboratory) is being done and report on the same is sought (with respect to alternative fuels). The "graded response action plan" has also been notified. (http://indianexpress.com/article/india/air‐pollution‐problem‐very‐serious‐urgent‐steps‐needed‐supreme‐court/lite/) EPCA has estimated 30,000mt of FO being sold monthly in NCR which if replaced entirely amounts to 0.8mmscmd of industrial PNG. Along with petcoke, total ban may translate into ~1mmscmd of incremental volumes for IGL which may happen over 5‐6 years. Hence ~0.2mmscmd of incremental volumes from this annually is 3‐4% of IGL's current sales. Impact of the ban on IGL's volumes 1mt FO is 800scm of industrial PNG 30,000mt of petcoke monthly is 0.36mmt annually 288mmscm of industrial PNG annually FO opportunity 0.8 mmscmd Petcoke opportunity (as per channel checks) 0.2 mmscmd Total opportunity of the ban is 1.0mmscmd IGL's current sales 4.5mmscmd If 1mmscmd is realised over 5‐6 years, annual realisation 0.17‐0.2mmscmd Impact on IGL's volume growth annually 3.8%‐4.4% (3‐4% expected)
Source: Media reports/EPCA, Company, PhillipCapital India Research EPCA also highlighted the taxation anomaly in UP where polluting FO has low tax incidence while cleaner natural gas is charged higher VAT. PNGRB's 8th Round of CGD bidding can help IGL's northern consolidation Four out of seven geographical areas (GAs) offered under PNGRB's 8th round namely Karnal, Ambala & Kurukshetra, Bulandshahr and Bagpat are around Delhi/NCR being only 2‐3 hours away from the Delhi border. IGL plans to bid for 2‐3 GAs which is sensible as these are contiguous areas for IGL. These areas can contribute to both CNG and PNG similar to Rewari where IGL expects 0.4‐0.5mmscmd volumes in 5‐6 years equally distributed between the two fuels. Our channel checks suggest 50,000scmd of ready gas demand in these places which can grow at 20% CAGR in the next 5‐6 years thereby entailing ~0.1mmscmd volumes each. Hence three GAs can add 1‐2% of growth annually.
Page | 2 | PHILLIPCAPITAL INDIA RESEARCH
INDRAPRASTHA GAS LTD COMPANY UPDATE
PNGRB 8th Round of Bidding ‐ Last date of bid issuance on 16 February 2017 GAs offered under 8th Round
Distance from Delhi/ Highway Present
Immediate Volumes (mmscmd)
5 year CAGR
Volumes after5 years
5yr impact on IGL's volumes
Karnal (Haryana) 2 hours / NH44 0.05 20% 0.12 2.8%Ambala & Kurukshetra (Haryana) 3 hours / NH44, NH9 0.05 20% 0.12 2.8%Bulandshahr (UP) 2 hours 30 minutes / NH9, NH34 0.05 20% 0.12 2.8%Bagpat (UP) 2 hours / NH44 0.01 10% 0.02 0.4%Total IGL 8.7%Average annual impact 1.7%
Source: PNGRB, Google Maps, Channel Checks, Company, PhillipCapital India Research These areas will also boost IGL's participation in the green corridor policy which would cover Delhi to Chandigarh/Agra/Kanpur/Jaipur/Haridwar highways. IGL aims to get 50% of the highway business generated as such. The Government aims to set up 1 CNG station after every 50kms along highways. In Rewari, IGL is setting up two CNG outlets by March 2017 along with adding 200 domestic PNG customers in CY17. Rewari is an intensive industrial cluster too. Gross potential demand from Delhi‐Jaipur Highway Delhi Jaipur Vehicles Mileage Distance CNG/vehicle Annual CNG Annual CNGHighway (NH‐8) mn km/kg km kg mn.kg mmscmCars & Taxis 5.9 18.0 275 15.3 90.1 119LCV 1.1 8.0 275 34.4 37.8 50Bus 0.6 3.5 275 78.6 47.1 62Total 7.5 232CNG required in mmscmd 0.6
Source: Industry, Phillip Capital India Research The NGT has also indicated to northern states that diesel buses to/through Delhi may be stopped and CNG infrastructure may be set up for conversion of public transport. If IGL is able to set up outlets in highways around Delhi, conversion of STC buses would aid CNG volumes. Rapid Domestic PNG growth targeted IGL plans to do away with customer deposit (of Rs 5,000) to boost domestic PNG volumes, making it more attractive for lower income groups in NCR semi urban areas, replacing the same with a rental of ~Rs 50. Board will look into it soon. IGL has already started EMI payment for the deposit along with other freebies like free gas of Rs 500 and referral bonus. Domestic PNG trend: Volumes Connections
0.11
0.20
0.15
0.19 0.19
0.23 0.25 83%
‐27%
29%
1%
23%11%
‐0.4
‐0.2
0
0.2
0.4
0.6
0.8
1
‐
0.05
0.10
0.15
0.20
0.25
0.30
FY11 FY12 FY13 FY14 FY15 FY16 1HFY17
Domestic PNG volumes (mmscmd) YoY growth ‐ RHS
0.24 0.33 0.39 0.46 0.56 0.64 0.68
0.09
0.05
0.07
0.10
0.08
0.04
0
0.02
0.04
0.06
0.08
0.1
0.12
‐
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
FY11 FY12 FY13 FY14 FY15 FY16 1HFY17
Connections (mn) Additions (mn)
Source: Company, PhillipCapital India Research
Page | 3 | PHILLIPCAPITAL INDIA RESEARCH
INDRAPRASTHA GAS LTD COMPANY UPDATE
Customer deposits have been an important element of the balance sheet (~15% of capital employed) yet doing away the same would still not be stressful considering IGL's debt free status. The additional rental may in fact aid margins in the near term. In domestic PNG, the Government has set up a stiff target of 0.15mn additional connections annually. While IGL expects to do around 0.1mn this year, going forward it would be more aggressive to touch the target by reaching out to real estate developers and defense forces housing societies. In 1HFY17, IGL has done 10% volume growth in domestic PNG and it is likely to continue. Buses are adding up, 10 year old diesel vehicle ban an upside risk We also would like to highlight that although slowly, bus additions are nevertheless taking place. 225 new buses are expected by March under DIMTS which would be followed by 144 non A/C and 431 A/C buses. 100 new buses were already inducted under DIMTS in September 2016. We estimate a 1.5% volume growth from 1,000 new buses, hence the same is a move in positive direction. Delhi Government is aggressively trying to increase bus usage (where load has fallen) and has announced a 75% cut in fares (though same has to be approved by LG). Additionally 800 new RTVs have also been introduced. Impact of various conversion opportunities on IGL's volumes Vehicle type/opportunity No.s Daily Consumption
/bus (kg)Total Consumption
(mmscmd) Impact on
IGL's volumesNew buses 1,000 50 0.07 1.5%Diesel bus conversion due to NGT ban 11,500 50 0.78 17.3%Diesel goods carrier conversion due to NGT ban 9,0000 20 2.44 54.3%Diesel private vehicle conversion due to NGT ban 160,000 5 1.09 24.1%
Source: Media reports, PhillipCapital India Research The NGT has pursued ban of 10year+ old diesel vehicles in Delhi. As per media articles, there are 90,000 diesel goods carriers, 11,5000 diesel buses and 1.6lakhs private diesel vehicles which are 10year+ old. Although implementation of this order is challenging with wide financial implication due to which the Government has moved Supreme Court opposing the same, but even a partial ban can be significant for IGL. Existing volume growth driven by taxis and trading volumes IGL has stated that strong volume growth in FY17 is driven by taxis (particularly app based) which converted to CNG following Supreme Court/NGT's orders and even after that, almost 10,000 new taxis are being added to the fleet annually (~12,000 taxis were registered in Delhi in FY16). While ban on spurious kits have affected private vehicle conversions, taxis including corporate cabs in NCR satellites are converting to CNG rapidly. 10,000 new auto permits are also expected to be issued by March 2017. EPCA is also pursuing conversion of auto‐rickshaws, buses and taxis (including app based) to CNG in seven districts of UP and Haryana including Meerut, Sonepat and Jhajjar.
Page | 4 | PHILLIPCAPITAL INDIA RESEARCH
INDRAPRASTHA GAS LTD COMPANY UPDATE
Delhi buses and taxi scenario Buses registered versus those on CNG Number of registered taxis
61,471 64,033
39,694 40,947
32,540
43,723
16,655 18,839 18,826 19,566 19,421 19,272
‐
10,000
20,000
30,000
40,000
50,000
60,000
70,000
FY11 F12 FY13 FY14 FY15 FY16
Buses ‐ Total Buses ‐ CNG
57,958
69,780 70,335 78,686 79,606
91,073
‐
20,000
40,000
60,000
80,000
100,000
FY11 F12 FY13 FY14 FY15 FY16
Taxis registered in Delhi
Source: Company, Delhi Govt, PhillipCapital India Research Interestingly in FY16, 11,000 new buses were registered in Delhi while number of CNG buses slightly dropped. Diesel consumption in Delhi recorded almost 20% growth yoy in FY16 which is alarming considering the efforts made to lower diesel demand. NDMC rental issue is a non event IGL has clarified that the North Delhi Municipal Corporation (NMDC) usage charge has been lowered from Rs 75,162/metre to Rs 684/metre and is prospective. Hence there won't be any retrospective impact. As per media reports citing officials, 1km of IGL's pipelines cost Rs 5mn. This would now go up by 12% to Rs 5.5mn. IGL added ~500kms of pipelines across NCR in FY16. If Rs 684/metre is levied on future addition of 100km pipelines in North Delhi alone, capex would be higher by only Rs 60‐70mn versus a planned capex of Rs 4.5bn including Rs 1bn in Rewari. IGL expects Delhi capex to increase in the near term due to automation at its retail outlets. Two wheelers not a big trigger We do not see 2W as a big volume trigger considering CNG conversion is applicable only in scooters. In Delhi, there are 6mn+ two wheelers and assuming a 15‐20% share, scooter population would be ~1mn. If we build in 0.1mn conversions annually, additional volumes would be only 0.01‐0.02mmscmd which is less than 0.5% of IGL's current sales. Further due to short travel distance and approved CNG kit being priced above Rs 15,000, the payback period is not attractive at more than 2 years except for delivery fleets. In Delhi, a pilot is being run on the same. Longer term triggers IGL's MD also cited small scale power generation for housing societies and small industries as a future area of growth. Our channel checks have also highlighted possibility of consolidation where GAs like Sonepat and Meerut (currently with GAIL) may be transferred to IGL thereby expanding IGL's presence in north India. Margins may see some pressure, but IGL's pricing policy is proactive While IGL has reiterated the company will pass on higher gas prices to customers, cost pressures would nevertheless intensify both on the raw material as well as opex front. We estimate APM gas prices to bottom out at US$ 2.7‐2.8/mmbtu in 1HFY18 and jump up sharply by US$ 0.8‐1/mmbtu in 2HFY18 going by the current international benchmark prices.
Page | 5 | PHILLIPCAPITAL INDIA RESEARCH
INDRAPRASTHA GAS LTD COMPANY UPDATE
Major gas pricing benchmarks APM gas pricing trend
0
2
4
6
8
10
12
Jul-1
3
Oct-1
3
Jan-
14
Apr-1
4
Jul-1
4
Oct-1
4
Jan-
15
Apr-1
5
Jul-1
5
Oct-1
5
Jan-
16
Apr-1
6
Jul-1
6
Oct-1
6
Jan-
17
Alberta ($/mmbtu) Henry Hub ($/mmbtu) NBP ($/mmbtu)
4.20
5.61 5.174.24
3.392.78 2.73
3.76
0.0
1.0
2.0
3.0
4.0
5.0
6.0 APM Gas Price ‐ NCV (US$/mmbtu)
Source: Bloomberg, Industry, PhillipCapital India Research Our interaction revealed that the Delhi Development Authority (DDA) rental demand would be provided by the company so long the litigation is not cleared, yet with OMCs losing a similar case, chances of the same seem a bit slim. IGL provided Rs 167mn in Q2FY17 as 1H amount, hence an annual ~Rs 330 mn for DDA's rental demand is expected. IGL will also bear the merchant discount rate (MDR) of 0.75% on card transactions similar to OMCs and impact on same on a 50% share of total sales would be Rs 35mn annually as per the company. Currently Rs 5.5mn is card based transaction daily which is a 34% share to IGL's total sales. Both of these have a Rs 0.2/scm impact on margins. While IGL has been proactive in its pricing policy and margin maintenance (seen recently in its quick pass through of the rollback of Gujarat input credit), EBITDA margin upsides from 1HFY17 rate of Rs 6.3/scm is challenging. Nevertheless, we expect the same stabilising at the upper end of the Rs 5.5‐6/scm guidance and have built in the same. IGL's volume outlook IGL's margin outlook
2.8 2.8 2.9 3.1 3.4 3.7 4.1 4.5
0.9 1.0 0.9 0.91.1
1.21.3
1.4
3.7 3.8 3.8 4.04.4
4.95.4
5.9
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY20E
mmscmd
CNG Sales PNG Sales Total Volumes
5.7 5.7 5.7
5.4
6.26.1
5.9 5.9
4.8
5.0
5.2
5.4
5.6
5.8
6.0
6.2
6.4
FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY20E
Rs.bn
Reported EBITDA/scm (Rs)
Source: Company, PhillipCapital India Research
Page | 6 | PHILLIPCAPITAL INDIA RESEARCH
INDRAPRASTHA GAS LTD COMPANY UPDATE
Financials and valuation: Snapshot Y/E, March 31, Std. FY14 FY15 FY16 FY17E FY18E FY19ERevenues (Rs.mn) 39,138 36,810 36,858 37,965 37,552 42,629EBITDA (Rs.mn) 7,824 7,930 7,857 10,040 10,899 11,621Reported PAT (Rs.mn) 3,603 4,377 4,162 5,790 6,568 7,096Adjusted PAT (Rs.mn) 3,603 4,377 4,256 5,902 6,568 7,096Growth 2% 22% ‐3% 39% 11% 8%Reported EPS (Rs.) 25.7 31.3 29.7 41.4 46.9 50.7Adjusted EPS (Rs.) 25.7 31.3 30.4 42.2 46.9 50.7Adjusted PE (x) 36.1 29.7 30.6 22.0 19.8 18.3PB (x) 7.4 6.2 5.4 4.6 3.9 3.5EV/EBITDA (x) 16.7 16.2 16.0 12.1 10.8 9.8RoE 20% 21% 17% 20% 20% 19%RoCE 22% 23% 21% 23% 22% 21%Debt:Equity (x) 0.2 0.1 ‐ ‐ ‐ ‐EBITDA/scm (Rs.) 5.7 5.7 5.4 6.2 6.1 5.9Volumes (mmscmd) 3.8 3.8 4.0 4.4 4.9 5.4Growth 3% 1% 4% 11% 10% 10%
Source: Company, PhillipCapital India Research
DCF assumptions DCF Assumptions Risk Free Rate 7.5% Risk Premium 6.0% Beta 0.8 Cost Of Equity 12.0% Cost Of Debt 10.0% Post Tax Cost Of Debt 6.7% Average Debt:Equity Ratio 25% WACC 11.0% TG IGL 2%, CUGL 1.5%, MNGL 2.5%
SOTP valuationFY18E (Rs mn) – DCF Based Core IGL CUGL 50% MNGL 50% Consol.NPV Of FCF 59,268 1,473 5,500 Terminal Value 178,239 4,106 20,049 PV Of TV 62,989 1,377 6,595 Total Value 122,257 2,850 12,094 Less: Net Debt (Y/E) ‐11,897 ‐650 1,301 Equity Value 134,154 3,499 10,793 148,447 No. Of Shares O/S (mn) 140 140 140 140 Target Price (Rs) 958 25 77 1,060
IGL's PE‐based valuation Rs/sh FY16 FY17E FY18E FY19E IGL's Core EPS 30.4 42.2 46.9 50.7 Less: CU/MNGL Div. Inc. 0.5 0.8 0.9 1.0 IGL Adjusted EPS 29.9 41.3 46.0 49.7 CUGL/MNGL EPS Contri. 3.9 5.5 5.9 6.4 Consol. EPS 33.7 46.8 52.0 56.2 Target Multiple (x) 18.9 DCF Target Price 1,060
Source: Company, PhillipCapital India Research
Page | 7 | PHILLIPCAPITAL INDIA RESEARCH
Page | 8 | PHILLIPCAPITAL INDIA RESEARCH
INDRAPRASTHA GAS LTD COMPANY UPDATE
Financials (standalone)
Income Statement Y/E Mar, Rs mn FY16 FY17e FY18e FY19eNet sales 36,858 37,965 37,552 42,629Growth, % 0 3 ‐1 14Other income 0 0 0 0Total income 36,858 37,965 37,552 42,629Raw material expenses ‐22,761 ‐20,942 ‐18,744 ‐22,100Employee expenses ‐796 ‐852 ‐911 ‐975Other Operating expenses ‐5,444 ‐6,132 ‐6,998 ‐7,933EBITDA (Core) 7,857 10,040 10,899 11,621Growth, % (0.9) 27.8 8.6 6.6Margin, % 21.3 26.4 29.0 27.3Depreciation ‐1,577 ‐1,886 ‐1,978 ‐2,076EBIT 6,281 8,154 8,921 9,546Growth, % (2.5) 29.8 9.4 7.0Margin, % 17.0 21.5 23.8 22.4Interest paid ‐91 0 0 0Other Non‐Operating Income 299 655 882 1,046Non‐recurring Items ‐140 ‐167 0 0Pre‐tax profit 6,349 8,643 9,803 10,591Tax provided ‐2,187 ‐2,852 ‐3,235 ‐3,495Profit after tax 4,162 5,790 6,568 7,096Others (Minorities, Associates) 0 0 0 0Net Profit 4,162 5,790 6,568 7,096Growth, % (1.7) 38.5 10.3 8.0Net Profit (adjusted) 4,302 5,957 6,568 7,096Unadj. shares (m) 140 140 140 140Wtd avg shares (m) 140 140 140 140 Balance Sheet Y/E Mar, Rs mn FY16 FY17e FY18e FY19eCash & bank 4,538 8,415 11,897 15,801Marketable securities at cost 0 0 0 0Debtors 2,400 2,472 2,446 2,776Inventory 472 501 480 541Loans & advances 460 470 481 491Other current assets 154 156 158 159Total current assets 8,024 12,015 15,461 19,769Investments 2,592 2,592 2,592 2,592Gross fixed assets 33,596 36,255 39,813 43,219Less: Depreciation ‐13,500 ‐15,386 ‐17,363 ‐19,439Add: Capital WIP 2,949 2,890 2,832 2,775Net fixed assets 23,045 23,759 25,281 26,555Total assets 33,661 38,366 43,334 48,916Current liabilities 2,468 2,313 2,124 2,434Provisions 1,162 1,190 1,218 1,247Total current liabilities 3,630 3,503 3,342 3,682Non‐current liabilities 5,899 6,469 7,000 7,530Total liabilities 9,529 9,972 10,342 11,212Paid‐up capital 1,400 1,400 1,400 1,400Reserves & surplus 22,732 26,994 31,592 36,304Shareholders’ equity 24,132 28,394 32,992 37,704Total equity & liabilities 33,661 38,366 43,334 48,916 Source: Company, PhillipCapital India Research Estimates
Cash Flow Y/E Mar, Rs mn FY16 FY17e FY18e FY19ePre‐tax profit 6,349 8,643 9,803 10,591Depreciation 1,577 1,886 1,978 2,076Chg in working capital 812 310 386 445Total tax paid ‐1,812 ‐2,852 ‐3,235 ‐3,495Cash flow from operating activities 6,926 7,986 8,932 9,617Capital expenditure ‐2,523 ‐2,600 ‐3,500 ‐3,350Chg in investments ‐95 0 0 0Chg in marketable securities 412 0 0 0Other investing activities 0 0 0 0Cash flow from investing activities ‐2,206 ‐2,600 ‐3,500 ‐3,350Free cash flow 4,720 5,386 5,432 6,267Debt raised/(repaid) ‐1,453 0 0 0Dividend (incl. tax) ‐1,044 ‐1,508 ‐1,950 ‐2,363Cash flow from financing activities ‐2,497 ‐1,508 ‐1,950 ‐2,363Net chg in cash 2,223 3,878 3,482 3,904 Valuation Ratios
FY16 FY17e FY18e FY19ePer Share data EPS (INR) 30.7 42.6 46.9 50.7Growth, % (1.7) 38.5 10.3 8.0Book NAV/share (INR) 172.4 202.8 235.7 269.3FDEPS (INR) 30.7 42.6 46.9 50.7CEPS (INR) 43.0 57.2 61.0 65.5CFPS (INR) 47.3 52.4 57.5 61.2DPS (INR) 6.0 9.1 11.7 14.2Return ratios Return on assets (%) 13.1 16.1 16.1 15.4Return on equity (%) 17.8 21.0 19.9 18.8Return on capital employed (%) 14.6 17.8 17.5 16.6Turnover ratios Asset turnover (x) 1.9 1.9 1.8 2.0Sales/Total assets (x) 1.1 1.1 0.9 0.9Sales/Net FA (x) 1.6 1.6 1.5 1.6Working capital/Sales (x) 0.0 0.0 0.0 0.0Receivable days 23.8 23.8 23.8 23.8Inventory days 4.7 4.8 4.7 4.6Payable days 25.8 24.6 23.1 23.4Working capital days 0.0 2.4 3.7 3.9Liquidity ratios Current ratio (x) 2.3 3.6 4.9 5.6Quick ratio (x) 2.2 3.4 4.7 5.5Interest cover (x) 69.4 Dividend cover (x) 5.1 4.7 4.0 3.6Total debt/Equity (%) ‐ ‐ ‐ ‐Net debt/Equity (%) (18.8) (29.6) (36.1) (41.9)Valuation PER (x) 30.2 21.8 19.8 18.3PEG (x) ‐ y‐o‐y growth (17.7) 0.6 1.9 2.3Price/Book (x) 5.4 4.6 3.9 3.5Yield (%) 0.6 1.0 1.3 1.5EV/Net sales (x) 3.4 3.2 3.1 2.7EV/EBITDA (x) 16.0 12.1 10.8 9.8EV/EBIT (x) 20.0 14.9 13.3 12.0
INDRAPRASTHA GAS LTD COMPANY UPDATE
Stock Price, Price Target and Rating History
B (TP 575)
B (TP 630)B (TP 620)
B (TP 630)
N (TP 650)B (TP 840)
B (TP 875)
0
100
200
300
400
500
600
700
800
900
1000
S‐15 O‐15 D‐15 J‐16 M‐16 A‐16 J‐16 J‐16 S‐16 O‐16 D‐16 J‐17
Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year. Rating Criteria Definition
BUY >= +15% Target price is equal to or more than 15% of current market price
NEUTRAL ‐15% > to < +15% Target price is less than +15% but more than ‐15%
SELL <= ‐15% Target price is less than or equal to ‐15%.
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INDRAPRASTHA GAS LTD COMPANY UPDATE
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Contact Information (Regional Member Companies)
SINGAPORE: Phillip Securities Pte Ltd 250 North Bridge Road, #06‐00 RafflesCityTower,
Singapore 179101 Tel : (65) 6533 6001 Fax: (65) 6535 3834
www.phillip.com.sg
MALAYSIA: Phillip Capital Management Sdn Bhd B‐3‐6 Block B Level 3, Megan Avenue II,
No. 12, Jalan Yap Kwan Seng, 50450 Kuala Lumpur Tel (60) 3 2162 8841 Fax (60) 3 2166 5099
www.poems.com.my
HONG KONG: Phillip Securities (HK) Ltd 11/F United Centre 95 Queensway Hong Kong Tel (852) 2277 6600 Fax: (852) 2868 5307
www.phillip.com.hk
JAPAN: Phillip Securities Japan, Ltd 4‐2 Nihonbashi Kabutocho, Chuo‐ku
Tokyo 103‐0026 Tel: (81) 3 3666 2101 Fax: (81) 3 3664 0141
www.phillip.co.jp
INDONESIA: PT Phillip Securities Indonesia ANZTower Level 23B, Jl Jend Sudirman Kav 33A,
Jakarta 10220, Indonesia Tel (62) 21 5790 0800 Fax: (62) 21 5790 0809
www.phillip.co.id
CHINA: Phillip Financial Advisory (Shanghai) Co. Ltd. No 550 Yan An East Road, OceanTower Unit 2318
Shanghai 200 001 Tel (86) 21 5169 9200 Fax: (86) 21 6351 2940
www.phillip.com.cn
THAILAND: Phillip Securities (Thailand) Public Co. Ltd. 15th Floor, VorawatBuilding, 849 Silom Road,
Silom, Bangrak, Bangkok 10500 Thailand Tel (66) 2 2268 0999 Fax: (66) 2 2268 0921
www.phillip.co.th
FRANCE: King & Shaxson Capital Ltd. 3rd Floor, 35 Rue de la Bienfaisance
75008 Paris France Tel (33) 1 4563 3100 Fax : (33) 1 4563 6017
www.kingandshaxson.com
UNITED KINGDOM: King & Shaxson Ltd. 6th Floor, Candlewick House, 120 Cannon Street
London, EC4N 6AS Tel (44) 20 7929 5300 Fax: (44) 20 7283 6835
www.kingandshaxson.com
UNITED STATES: Phillip Futures Inc. 141 W Jackson Blvd Ste 3050
The Chicago Board of TradeBuilding Chicago, IL 60604 USA
Tel (1) 312 356 9000 Fax: (1) 312 356 9005
AUSTRALIA: PhillipCapital Australia Level 10, 330 Collins Street
Melbourne, VIC 3000, Australia Tel: (61) 3 8633 9800 Fax: (61) 3 8633 9899
www.phillipcapital.com.au
SRI LANKA: Asha Phillip Securities Limited Level 4, Millennium House, 46/58 Navam Mawatha,
Colombo 2, Sri Lanka Tel: (94) 11 2429 100 Fax: (94) 11 2429 199
www.ashaphillip.net/home.htm
INDIA PhillipCapital (India) Private Limited
No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013 Tel: (9122) 2300 2999 Fax: (9122) 6667 9955 www.phillipcapital.in
Management(91 22) 2483 1919
Kinshuk Bharti Tiwari (Head – Institutional Equity) (91 22) 6667 9946(91 22) 6667 9735
Research IT Services Pharma & Speciality Chem
Dhawal Doshi (9122) 6667 9769 Vibhor Singhal (9122) 6667 9949 Surya Patra (9122) 6667 9768Nitesh Sharma, CFA (9122) 6667 9965 Shyamal Dhruve (9122) 6667 9992 Mehul Sheth (9122) 6667 9996Banking, NBFCs Infrastructure StrategyManish Agarwalla (9122) 6667 9962 Vibhor Singhal (9122) 6667 9949 Naveen Kulkarni, CFA, FRM (9122) 6667 9947Pradeep Agrawal (9122) 6667 9953 Deepak Agarwal (9122) 6667 9944 Aashima Mutneja (9122) 6667 9764Paresh Jain (9122) 6667 9948 Logistics, Transportation & Midcap TelecomConsumer & Retail Vikram Suryavanshi (9122) 6667 9951 Naveen Kulkarni, CFA, FRM (9122) 6667 9947Naveen Kulkarni, CFA, FRM (9122) 6667 9947 Media Manoj Behera (9122) 6667 9973Jubil Jain (9122) 6667 9766 Manoj Behera (9122) 6667 9973 TechnicalsPreeyam Tolia (9122) 6667 9950 Metals Subodh Gupta, CMT (9122) 6667 9762Cement Dhawal Doshi (9122) 6667 9769 Production ManagerVaibhav Agarwal (9122) 6667 9967 Yash Doshi (9122) 6667 9987 Ganesh Deorukhkar (9122) 6667 9966Economics Mid‐Caps & Database Manager EditorAnjali Verma (9122) 6667 9969 Deepak Agarwal (9122) 6667 9944 Roshan Sony 98199 72726Engineering, Capital Goods Oil & Gas Sr. Manager – Equities SupportJonas Bhutta (9122) 6667 9759 Sabri Hazarika (9122) 6667 9756 Rosie Ferns (9122) 6667 9971Vikram Rawat (9122) 6667 9986
Sales & Distribution Ashvin Patil (9122) 6667 9991 Sales Trader Zarine Damania (9122) 6667 9976Shubhangi Agrawal (9122) 6667 9964 Dilesh Doshi (9122) 6667 9747 Bharati Ponda (9122) 6667 9943Kishor Binwal (9122) 6667 9989 Suniil Pandit (9122) 6667 9745Bhavin Shah (9122) 6667 9974Ashka Mehta Gulati (9122) 6667 9934 ExecutionArchan Vyas (9122) 6667 9785 Mayur Shah (9122) 6667 9945
Corporate Communications
Vineet Bhatnagar (Managing Director)
Jignesh Shah (Head – Equity Derivatives)
Automobiles
INDRAPRASTHA GAS LTD COMPANY UPDATE
Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives, and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may, may not match, or may be contrary at times with the views, estimates, rating, and target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd.
This report is issued by PhillipCapital (India) Pvt. Ltd., which is regulated by the SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. References to "PCIPL" in this report shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for information purposes only, and neither the information contained herein, nor any opinion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment, or derivatives. The information and opinions contained in the report were considered by PCIPL to be valid when published. The report also contains information provided to PCIPL by third parties. The source of such information will usually be disclosed in the report. Whilst PCIPL has taken all reasonable steps to ensure that this information is correct, PCIPL does not offer any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at his or her own risk and PCIPL does not accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily an indication of future performance.
This report does not regard the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax, and financial advisors and reach their own conclusions regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realised. Under no circumstances can it be used or considered as an offer to sell or as a solicitation of any offer to buy or sell the securities mentioned within it. The information contained in the research reports may have been taken from trade and statistical services and other sources, which PCIL believe is reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice.
Important: These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the research report is subject to all aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this research report is available on request.
Certifications: The research analyst(s) who prepared this research report hereby certifies that the views expressed in this research report accurately reflect the research analyst’s personal views about all of the subject issuers and/or securities, that the analyst(s) have no known conflict of interest and no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific views or recommendations contained in this research report.
Additional Disclosures of Interest: Unless specifically mentioned in Point No. 9 below: 1. The Research Analyst(s), PCIL, or its associates or relatives of the Research Analyst does not have any financial interest in the company(ies) covered in
this report. 2. The Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively do not hold more than 1% of the securities of the
company (ies)covered in this report as of the end of the month immediately preceding the distribution of the research report. 3. The Research Analyst, his/her associate, his/her relative, and PCIL, do not have any other material conflict of interest at the time of publication of this
research report. 4. The Research Analyst, PCIL, and its associates have not received compensation for investment banking or merchant banking or brokerage services or for
any other products or services from the company(ies) covered in this report, in the past twelve months. 5. The Research Analyst, PCIL or its associates have not managed or co‐managed in the previous twelve months, a private or public offering of securities for
the company (ies) covered in this report. 6. PCIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party, in
connection with the research report. 7. The Research Analyst has not served as an Officer, Director, or employee of the company (ies) covered in the Research report. 8. The Research Analyst and PCIL has not been engaged in market making activity for the company(ies) covered in the Research report. 9. Details of PCIL, Research Analyst and its associates pertaining to the companies covered in the Research report: Sr. no. Particulars Yes/No
1 Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for investment banking transaction by PCIL
No
2 Whether Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively hold more than 1% of the company(ies) covered in the Research report
No
3 Whether compensation has been received by PCIL or its associates from the company(ies) covered in the Research report No4 PCIL or its affiliates have managed or co‐managed in the previous twelve months a private or public offering of securities for the
company(ies) covered in the Research report No
5 Research Analyst, his associate, PCIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in the Research report, in the last twelve months
No
Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it, or its affiliates/employees, may have positions in, purchase or sell, or be materially interested in any of the securities covered in the report.
Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic, or political factors. Past performance is not necessarily indicative of future performance or results.
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INDRAPRASTHA GAS LTD COMPANY UPDATE
Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material, and are subject to change without notice. Furthermore, PCIPL is under no obligation to update or keep the information current. Without limiting any of the foregoing, in no event shall PCIL, any of its affiliates/employees or any third party involved in, or related to computing or compiling the information have any liability for any damages of any kind including but not limited to any direct or consequential loss or damage, however arising, from the use of this document.
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For U.S. persons only: This research report is a product of PhillipCapital (India) Pvt Ltd., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S.‐regulated broker‐dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker‐dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances, and trading securities held by a research analyst account.
This report is intended for distribution by PhillipCapital (India) Pvt Ltd. only to "Major Institutional Investors" as defined by Rule 15a‐6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by the U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated, and/or transmitted onward to any U.S. person, which is not a Major Institutional Investor. In reliance on the exemption from registration provided by Rule 15a‐6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, PhillipCapital (India) Pvt Ltd. has entered into an agreement with a U.S. registered broker‐dealer, Decker & Co, LLC. Transactions in securities discussed in this research report should be effected through Decker & Co, LLC or another U.S. registered broker dealer. If Distribution is to Australian Investors This report is produced by PhillipCapital (India) Pvt Ltd and is being distributed in Australia by Phillip Capital Limited (Australian Financial Services Licence No. 246827). This report contains general securities advice and does not take into account your personal objectives, situation and needs. Please read the Disclosures and Disclaimers set out above. By receiving or reading this report, you agree to be bound by the terms and limitations set out above. Any failure to comply with these terms and limitations may constitute a violation of law. This report has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. If you have received this report by mistake, please delete or destroy it, and notify the sender immediately. PhillipCapital (India) Pvt. Ltd. Registered office: No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013
