New Delhi-based Indraprastha Gas Ltd (IGL)—a venture of GAIL (India) Ltd, Bharat Petroleum Corp. Ltd and the Delhi government—has increased prices of compressed natural gas (CNG) to pass on the higher cost of sourcing gas.
That’s a positive development for the company, but not very material. The current gas shortage in the country means that city gas distribution companies such as IGL would have to source much higher priced regasified liquefied natural gas (RLNG) to meet incremental demand.
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In the current environment, if the company has to protect its profit margin, then it has to resort to price hikes. Thankfully, IGL’s pricing power helps it to pass on the higher input costs to end-users; IGL has taken many hikes in the past to offset the impact of higher costs.
“IGL has taken price hike of about 55% for CNG in last 18 months to negate the impact of high cost RLNG,” notes Satish Mishra of PINC Research.
After the recent price hike, the consumer price of CNG in Delhi would increase by 50 paise per kg to Rs29.80 per kg and by 55 paise per kg in Noida, Greater Noida and Ghaziabad to Rs33.40 per kg.
Meanwhile, the company posted a decent set of financials for the fourth quarter led by strong volume growth, driven by both piped natural gas (PNG) and CNG. Also, price realizations were strong. “Realizations on CNG rose 38% year-on-year (y-o-y) to Rs28.6 per kg, and those on PNG rose 16.8% y-o-y to Rs22.4 per standard cubic metre (scm). Average realizations rose 31% y-o-y to Rs20.2 per scm,” wrote analysts from IIFL Research in their post-results note.
For the March quarter, total operating income increased by 76% y-o-y and 12% over the December quarter to Rs510 crore. However, higher gas costs have resulted in a sequential fall in gross spreads. At the net level, IGL posted 3% sequential increase in net profit to Rs 69 crore.
Investors are likely to keep a close watch on the extent to which price hikes can protect profit margins. IGL’s scrip has outperformed the BSE-500 Index on the Bombay Stock Exchange in the last one year and seems to be factoring in most of the positives at the current levels.
Graphic by Ahmed Raza Khan/Mint
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