Indraprastha Gas’ Q2 performance driven by healthy volume growth  


Indraprastha Gas Ltd (IGL) reported strong Q2 performance helped by strong volume growth. Its compressed natural gas (CNG) volumes grew 36% year-on-year during the quarter, and piped natural gas (PNG) commercial volumes rose 26% year on year. 

With this, the total gas sales volumes jumped 32% year-on-year and 36% sequentially to 7.24 mmscmd (million standard cubic meters per day). Notably, gas volumes now have crossed pre-covid levels adding to the firm outlook for IGL.

With strong volume growth, the price hikes undertaken by the company meant that the PNG and CNG sales revenues grew 35% and 53% year-on-year respectively. This drove total revenues from the operation by 40% year-on-year.

However, while volume growth impressed there was some disappointment on the operating performance. The company has been taking regular price hikes to take care of rising domestic gas prices. Nevertheless, the domestic gas allocation is not adequate, say analysts. The company still had to source gas from the spot market. With spot gas prices being exceptionally high, there was some pressure on margins.

The company’s Ebitda (earnings before interest tax depreciation and amortisation) grew 30% year-on-year. Ebitda margins at 29%, however, were lower than 31% seen in the year-ago quarter.

Moving forward, demand dynamics remain favourable. The opening up of economic activities continues to fuel growth in gas demand from the automobile and industrial sectors. The need for cleaner and cheaper fuel has meant that country sees strong demand for natural gas. IGL has a higher share of sales in the CNG segment and looking at firm petrol and diesel prices, cost dynamics remain favourable towards CNG. Overall, the growth volume remains firm. 

Analysts at Sharekhan expect a 14% CAGR (compound annual growth rate) in volumes during FY21-24 led by growth in existing geographical areas and expansion into new geographical areas.

However, the rising gas price environment poses some challenges on the margin front. Domestic gas prices that have been revised from 1 October are expected to rise further during the next review. 

Analysts at Kotak Institutional Equities said that “the expected sharp rise in domestic gas price from April 2022 remains a key near-term headwind, even as CNG’s large discount to liquid auto fuels may allow IGL to pass on most of the increase in input gas cost”. They have cut forward estimates to factor in a tad lower margin.

The same is being reflected in stock prices that have corrected more than 15% since September highs.


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