Overview of Indraprastha Gas Limited
Incorporated in 1998, IGL took over Delhi City Gas Distribution Project in 1999 from GAIL (India) Limited (Formerly Gas Authority of India Limited). With the backing of strong promoters – GAIL (India) Ltd. and Bharat Petroleum Corporation Ltd. (BPCL) – IGL plans to provide natural gas in the entire capital region.
The company’s shares have 52 weeks price band of INR 534-284 and a total market capitalization of INR 320 billion which makes it a Mid-Cap company. The shares have a P/E ratio of 27 and a dividend yield of 0.52%
Now, let’s take a deep dive into the fundamentals of the company.
The company will be evaluated on 10 parameters and each would be given a rating out of 5 stars. From this, we will arrive at a combined stock rating for the company. As the ratings are based on long term past performance, they are relevant for at least 3 years in the future until FY 2022.
The parameters are as follows:
1. Economic Moat
2. Business Model and Management
3. Growth Ratios
4. Profitability Ratios
5. Cash Flow Ratios
6. Liquidity and Solvency Ratios
8. Valuation Ratios
9. ROE (Du Pont Analysis)
10. Future Prospects
(All units are INR Millions except ratios and per share data)
1.Economic Moat (★ ★ ★ ★ ☆)
The company operates in the Utility industry where market dominance comes through scale, distribution network, licensing and capacity. IGL was started to lay the network for the distribution of natural gas in Delhi to consumers in the domestic, transport, and commercial sectors.
Today IGL has its operations in NCT of Delhi, Noida, Greater Noida, Ghaziabad, Rewari, Karnal and Muzaffarnagar with 555+ CNG stations, 13.75+ lacs residential consumers and 5600+ industrial / commercial customers.
The company is also behind Fueling the largest CNG Bus fleet in the World. The company is beneficiary of its strong parentage and gets significant support from GAIL and BPCL relating to operations and management. This helps the company to save costs and provide superior services. Hence it has a good economic moat in the regions of operations and gets 4 stars in Indraprastha Gas fundamental analysis.
2. Business Model and Management (★ ★ ★ ★ ★)
The business model of the company is such that around 73% revenue comes from CNG business, 13% comes from Commercial and Industrial business,8% comes from CGD Business and the rest comes from Residential gas.
The company has tied up long term contract for RLNG to meet PNG Industrial and Commercial demand. Currently they are buying short term gas from the open market (Shell, IOCL, Petronet, GSPC, BPCL etc.).
On the PNG front, IGL is already operating in the residents of the areas of NCT of Delhi, district Rewari, Gurugram, Karnal and Kaithal in Haryana; and, district Ajmer, Pali and Rajsamand in Rajasthan.
Industrial and commercial segments would also remain one of the focus areas for the company in the near future. This overall shows a good business model focused on core growth along with diversification.
IGL Board is fairly well diversified with ten members including two each from GAIL and BPCL, one from Govt. of Delhi and five independent directors. Mr P K Gupta is the Chairman and Mr A K Jana js the Managing Director. Mr Amit Garg is the Director of Commercial Business for the company. Overall the management has been stable and has no previous instances of principal-agent conflicts. Therefore this category gets 5 stars in Indraprastha Gas fundamental analysis.
3. Growth Ratios (★ ★ ★ ★ ★)
The revenue has seen a CAGR growth of 20.48% over the last 10 years. The operating income and net income has also increased by double digits over the same period. The working capital has been positive and the Cap-Ex has increased over recent years which indicates upcoming expansion. Therefore this category gets 5 stars in Indraprastha Gas fundamental analysis.
4. Profitability Ratios (★ ★ ★ ★ ☆)
The gross margin has declined over the recent years due to increasing COGS and inflation-related costs which the company is not able to pass down to its customers. The other margins along with return on assets have seen stability over the years. The profitability outlook for the company is also stable for the near future. Therefore this category gets 4 stars in Indraprastha Gas fundamental analysis.
5. Cash Flow Ratios (★ ★ ★ ★ ★)
The net income margin has shown signs of stability and the Cap-Ex as a percentage of sales has also increased.The free cash flow as a percentage of net income has been positive as well. The operating and free cash flow growth has seen fluctuations due to Cap-Ex cycles of the company. Overall IGL has a good cash flow position. Therefore this category gets 5 stars in Indraprastha Gas fundamental analysis.
6.Liquidity and Solvency Ratios (★ ★ ★ ★ ★)
The company has long term debt which is only around 8% of the total capital structure. The debt to equity and leverage ratio has been flat over the years and the profitability has also improved. The current and quick ratios have also seen good growth over the years. This overall indicates good liquidity and solvency position for the company. Therefore this category gets 5 stars in Indraprastha Gas fundamental analysis.
7. Efficiency Ratios (★ ★ ★ ★ ★)
The table in the excel model is colour formatted so the worst performance over the period is highlighted in red colour and the best performance is highlighted by green.
Overall the business efficiency has improved significantly as the company expanded its scale and undertook new expansion projects. The Inventory days have declined along with the receivables period. The payable days have almost been halved over the years. The cash conversion cycle has decreased from -16 days to -25 days over the last 10 years. This overall is a good indicator of business efficiency. Therefore this category gets 5 stars in Indraprastha Gas fundamental analysis.
Also Watch: Indrapratha Gas Limited Stock Analysis
8. Valuation Ratios (★ ★ ★ ★ ☆)
The company’s shares have been trading at increasingly lower multiples since 2016 due to increasing costs and competition. Overall the shares have been corrected significantly and remain a good value investment considering the fundamentals of the company. Therefore this category gets 4 stars in Indraprastha Gas fundamental analysis
9. ROE 5 way Du Pont Analysis (★ ★ ★ ★ ☆)
The leverage ratio has been flat over the years and the asset turnover has declined. T
he interest burden ratio has also seen stability along with the operating margin increase. The tax efficiency has remained stable for the company. Overall the Return on Equity has been flat over the recent years due to improving the financial position of the company. Therefore this category gets 4 stars in Indraprastha Gas fundamental analysis
10. Future Prospects (★ ★ ★ ★ ★)
Some insights for the coming years from management discussion & analysis (MD&A) and con calls are as follows.
- The effect of Covid-19 will be of extraordinary expenses related to workforce and sanitization costs and will impact the profitability in the short term. The management can look for deferring Cap-ex to conserve cash during uncertain times.
- IGL expects CNG volumes to return to normalcy by end-FY 2021, however, margins are likely to remain strong due to lower domestic and spot prices.
- IGL continues to augment its infrastructure so as to meet the increasing demand for CNG arising out of the growing number of CNG vehicles in Delhi. The growth drivers for the increase in demand of CNG are – car manufacturers coming up with CNG variants and *
- Delhi Government’s directive making it mandatory for all LCVs operating in Delhi to run on CNG. The company is in the process of enhancing its compression capacity by adding new stations.
Overall the company has solid fundamentals along with improving profitability. The share price can also see a sharp increase in the near future as it will have good growth prospects when CapEx is realised. Therefore this category gets 5 stars in Indraprastha Gas fundamental analysis
The overall rating is arrived by taking the average of the above 10 category ratings and rounded up if it is above 0.5 and rounded down if it is below 0.5.
Overall Fundamental Rating:
INDRAPRASTHA GAS SHARES (4.6/5)
Therefore it is a 5-star stock
★ ★ ★ ★ ★
|Indraprastha Gas Shares|
|Economic Moat||★ ★ ★ ★ ☆|
|Business & Management||★ ★ ★ ★ ★|
|Growth Ratios||★ ★ ★ ★ ★|
|Profitability Ratios||★ ★ ★ ★ ☆|
|Cash Flow Ratios||★ ★ ★ ★ ★|
|Liquidity & Solvency||★ ★ ★ ★ ★|
|Efficiency Ratios||★ ★ ★ ★ ★|
|Valuation Ratios||★ ★ ★ ★ ☆|
|ROE (Du Pont Analysis)||★ ★ ★ ★ ☆|
|Future Prospects||★ ★ ★ ★ ★|
|Overall Fundamental Rating||★ ★ ★ ★ ★|