Higher raw material costs affected the operating profit margin of New Delhi-based city gas distributor Indraprastha Gas Ltd (IGL) for the September quarter.
Raw material cost as a percentage of revenue rose 277 basis points to 60% from a year ago. That’s mainly on account of higher proportion of the costlier liquefied natural gas (LNG) in the total gas sourcing portfolio. One basis point is one-hundredth of a percentage point.
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Operating profit margin fell by about 150 basis points to 26.4% on a year-on-year basis. Operating performance was more disappointing sequentially, with margins registering a 300 basis points decline.
Graphic by Ahmed Raza Khan/Mint
According to Satish Mishra, assistant vice-president at Pinc Research, IGL’s earnings before interest, tax, depreciation and amortization (Ebitda) per standard cubic metre (scm) stood at Rs 5.13 for the September quarter compared with Rs 5.62 in the June quarter. Ebitda is a measure of profitability.
Mishra said while Ebitda per scm has fallen sequentially, the metric has stood at around Rs 5 historically; and that the June quarter Ebitda per scm was not really sustainable.
Total sales volume (including compressed natural gas and piped natural gas) was strong at 307.7 million scm, posting 8% growth sequentially.
On a sequential basis, IGL’s total revenue growth of 11% in the September quarter to Rs 597.5 crore was better than the 5.2% growth reported in the June quarter.
However, while revenue growth was strong, weak operating performance, higher interest expenses and depreciation costs affected net profit, which declined 3.5% from the June quarter to Rs 77.2 crore.
Since the beginning of this fiscal, the IGL stock has smartly outperformed the BSE-200 index. Even as demand is strong, one of the key worries among analysts is the higher cost of LNG and its impact on profit margins in the days to come.
Previously, IGL has been able to pass on the rise in input costs by raising prices. Investors should keep a tab on the ability of the company to pass on costs in future and protect its margins.