In this blog, we present a 4 point analysis of Indraprastha Gas Ltd. We’ll discuss their business overview and promoters, shed some light on the recently announced Q2 FY21 results as well as assess the future outlook of the company.
4 Point Analysis of Indraprastha Gas Limited
1. Business Overview
- Indraprastha Gas Limited is one of India’s leading natural gas distribution companies. It processes and distributes natural gas as cooking (PNG) and vehicular fuel (CNG). Established in 1998, Indraprastha Gas Limited company operates primarily in the Indian state of Delhi.
- The transport sector uses natural gas as Compressed Natural Gas (CNG) while the domestic and commercial sectors use it as Piped Natural Gas (PNG).
- The project was started to lay the network for the distribution of natural gas in the National Capital Territory of Delhi to consumers in the domestic, transport, and commercial sectors.
- The primary business objectives of the company are to provide safe, convenient, and reliable natural gas supply (i.e. CNG, PNG & R-LNG) to its customers in the domestic and commercial sectors. It also aims to provide a cleaner, environment-friendly alternative as an auto fuel to residents.
- Major areas of operations spread across several parts of Northern India. It also operates extensively in Maharashtra through its subsidiary – Maharashtra Natural Gas Ltd.
- IGL sells CNG to over 12 lakh vehicles in NCR through a network of 560 CNG stations. It also supplies piped cooking gas to nearly 15 lakh households in these cities.
- Incorporated to take over and operate the Delhi City Gas Distribution Project from GAIL for laying a network of gas distribution pipelines in Delhi.
- It started as a joint venture between GAIL, Bharat Petroleum, and the Government of NCT of Delhi. Even today, Indraprastha Gas Limited continues to be is backed by the same set of strong promoters
3. Q2FY21 Results Highlights
- IGL reported a 23.1% decline in revenues owing to dampened sales of their major contributor i.e. CNG. CNG volumes down by 20.3% due to Lock-down & Transport Restrictions.
- However, the silver lining is the company witnessed a 9% jump in EBITDA. Also recorded a robust growth of 10% in EBITDA Margin in comparison to the previous year.
- To battle, the plunge in revenues, the cost-cutting measures adopted by the company are yielding fruitful results as their Profits Before Tax (PBT) have increased by 8.4% from Rs.368 Crore last year to Rs.399 Crore this year.
- It won’t be fair to compare the Net Profits of IGL on YoY basis as they had received a tax rebate of 4% in Q2FY20, while they had to pay taxes of 23% in Q2FY21.
4. Future Outlook
- The Government of India is focusing laboriously on Natural Gas as an Alternative Energy Resource. The current market share of Natural gas is 6.2% and the government aims to amplify that to 15% by 2025. This implies an 11%-12% CAGR over the next 10 years.
- With the easing of restrictions nationally and no further lockdowns henceforth, the core economic activities can function smoothly and even flourish beyond the pre-covid levels.
- The ripple effect is coming into play. Improving movements in transportation are resulting in higher volumes thereby giving new impetus to revenues and profits.
- Under GRAP (Graded Response Action Plan), the Government of India has banned the usage of Diesel Gensets in Delhi’s neighboring cities.
- That’s when Indraprastha Gas announced that they will help housing societies as well as commercial establishments to replace diesel in generators with environment-friendly natural gas.
- Indraprastha Gas Limited launched a green initiative called “Gas Based Genset”, through which they plan to offer diesel-run Genset users in residential complexes, commercial establishments, and industrial units based in Delhi, Noida, Greater Noida, Ghaziabad, and other parts of Gurugram, an appropriate solution to convert their electricity generating units to natural gas.
- In addition to getting an uninterrupted power supply, Gas based Gensets to provide numerous advantages such as – no emissions, low & less frequent maintenance, no fuel storage hassles, and savings as no transmissions & distribution losses.
- Fuel Efficiency & cost-effectiveness further enhanced by recovering waste heat to generate chilling/cooling/heating effect, hot water steam generation, etc.
Indraprastha Gas Limited is proving its mettle by not letting the detrimental impacts of the pandemic stymie their growth and profitability.
We must keep an eye out for how the company aims to thrive and maintain the momentum in their operating profit margins in the upcoming quarters.
The Gas Based Gensets initiative is representing a significant opportunity for IGL to capitalize on and could be a possible future growth engine for IGL.