Buy IndraPrastha Gas Ltd.


SCRIP : INDRAPRASTHA GAS LTD.

CMP :100

BEST BUY : 100-82

TARGET ---->>350( Long Term )

SECTOR : Oil & Gas ( Storage & Distribution )

Sector Outlook for Long Term -- Positive !

Stock Outlook for Long Term -- Bullish !



IGL, which supplies compressed natural gas (CNG) for automobiles and piped natural gas (PNG) to homes and commercial units, is a monopoly in Delhi. Commercial vehicles in the National Capital Region are bound by law to use CNG as fuel. Initially IGL converted entire public transport vehicles (PVT) (in Delhi) to CNG then the company started concentrating other segments like cars, LLV (Light Commercial Vehicles) in and outside of Delhi. However, it is the private vehicles that are now driving IGL’s growth. The high prices of petrol and diesel are behind the rising conversion of private vehicles to CNG. There is a big benefit for vehicle owners even after accounting for costs of conversion, given the wide gulf between the prevailing prices of petrol/diesel and CNG. In last few months, about 18,000 cars and 400 buses were converted to CNG. IGL has an allocation of 2.2 million standard cubic meters of gas a day (MMSCMD) from its parent Gail. Its average sales were 1.5 MMSCMD by end-March; given the increasing trend in conversion since, IGL must now be averaging about 1.7-1.9 MMSCMD of sales a day. There is still enough room in the allocated supply for IGL to expand its sales. For the quarter ended 30th September, 2008 Indraprastha Gas Limited (IGL) has posted 24.5% growth in net sales to Rs 2,166.7 million as compared to Rs 1,740.96 million for the quarter ended 30th September 2007

CNG & PNG conversion and expansion plan !


To meet this growing demand, the company is planning to set up additional 50 gas stations in the next two years 2010 in time for the Commonwealth Games, which would further strengthen its existing network of 163 stations. The company is also looking to expand its network to other neighbouring cities like Panipat, Sonepat and Rohtak apart from Greater Noida.

After PTV’s, the government is looking at converting diesel LCV’s to CNG in the next phase. The company is doing well in the fast growing PNG segment as well. In fact, the growth potential in this segment is immense with a huge target market. PNG grew at 21 per cent compared to overall business growth of 18 per cent in Q1 FY09, besides gross realisations for PNG (Rs 17.8/scm) has been greater than CNG (Rs 14.3/scm), thus indicating their respective profitability.IGL is targeting at increasing the share of PNG in the revenue pie to around 8 per cent from 7 per cent currently.The company is planning to set up 50,000 connections in FY09, and expects to reach one lakh connections per year thereafter, as part of its expansion plans in PNG. In order to achieve its plans, the company is scaling up infrastructure to cater to up to four lakh connections.

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EquityAhead Research 25th November, 2008