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Indraprastha Gas Ltd (IGL)

Incorporated in 1998, Indraprastha Gas Ltd (IGL) is the sole supplier of Compressed Natural Gas (CNG) and Piped Natural Gas (PNG) in the National Capital Region. The company is a joint venture between GAIL (India) Ltd and Bharat Petroleum Corporation Ltd. Its unique business model is a result of various business transfers, strategic modifications and client acquisitions giving the company an early-bird advantage in the market. In June 9, 2000, the company signed an asset transfer agreement with GAIL in which the business of distribution of natural gas, liquefied petroleum gas and compressed natural gas along with the land and buildings, licenses, permits, authorizations, customer lists contacts were transferred from GAIL to the company. During the year 2003-04, the company laid and commissioned 20 kms of 4 Dia steel pipelines to make 16 CNG stations on-line. During the year 2005-06, the company entered into an agreement with BPCL for supply of R-LNG on a long-term basis. The company commenced their supply of R-LNG to Britannia Industries, Haldiram's, and Pearl Drinks etc. In October 2007, the company started project execution activities in the town of Noida. The company has laid 12 Kms and 22 Kms of steel pipeline in Noida and Greater Noida respectively.

Currently, in Ghaziabad, the company has been allotted 2 sites for CNG stations for which project execution activities are under implementation. The company also plans to supply CNG through retail outlets of Oil Marketing Companies during the financial year 2008-09.

In Haryana, the company made a joint venture company with Siti Energy Ltd and in the process of setting up City Gas Distribution Projects in the towns of Sonepat & Panipat. The company is looking to expand their network to other neighbouring cities like Chandigarh, Panipat, Sonepat, Rohtak, Bulandshahr, Ghaziabad and Meerut.

The Company has a network of 325 stations for supply of CNG as on March 31, 2014. The estimated number of vehicles using CNG was over 7 lakhs in March 2014 and their back-end infrastructure, compression capacity and dispensing outlets are under continuous augmentation to meet the growing demand.

The Company has provided PNG connections to 4.6 lakhs domestic households and around 1875 commercial & industrial customers as on March 31, 2014.

Valuation and view

Currently, IGL stock banks upon positive volume growth catalysed by swelling auto demand, likely increase in the quantity of DTC buses in NCR and the takeover of Maharashtra Natural Gas Ltd. Going further, the company’s tactical extension plans will aid it in differentiating its revenue and thus improving margins over the years. We remain hopeful on the Supreme Court’s awaited ruling on the PNGRB brawl as the apex court is working out a compromise formula.

At the CMP of Rs 400.0, the stock trades at P/E of ~11.0x FY16E. We recommend ‘BUY’ for this stock considering the aforementioned aspects with a target price of Rs 521.0 placing a P/E multiple of 14x for FY16E, which implies potential upside of ~24% to the CMP from 1 year perspective.