Two factors boosted city gas distribution company Indraprastha Gas Ltd’s (IGL) financial performance in the June quarter. One, sales volumes were higher and second, gas cost was lower.
The company’s total sales volume (including compressed natural gas and piped natural gas) increased by 3.7% against the March quarter to 281.7 million standard cubic metres (scm), while its raw material costs fell to Rs10.60 per scm from Rs11.10 per scm. Analysts say the company’s overall gas cost fell slightly on a sequential basis because of higher availability of domestic gas.
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How did that happen? In a note to clients on 30 June, analysts from Citigroup Global Markets Inc. wrote, “While IGL was earlier getting (cheap) domestic gas (priced at $4.2, or Rs185 today) to the extent of about 2.3 mscmd (2 mscmd of APM gas for Delhi, 0.15 for Noida/Greater Noida, and 0.15 of KG gas) out of total current sales volume of about 3 mscmd, this has now increased to about 2.6 mscmd.”
Mscmd stands for million standard cubic metres per day, while APM is to administered price mechanism. KG gas refers to gas from the Krishna-Godavari basin.
The note further points out, “This follows the government’s recent (in early June) grant of approval to IGL for it to use unutilized APM allocations for Gurgaon/Faridabad for its own operations.”
While the full impact of the above development would reflect in the results of the current quarter, IGL must have benefited to some extent in the June quarter as well.
The company’s operating profit margin improved to 29% in the June quarter from about 27% in the March quarter. Not only that, the June quarter operating margin is also better than the last fiscal year’s by about a percentage point. Margins are expected to improve in the current fiscal. For the June quarter, operating profit and net profit both increased by around 15% to Rs158 crore and Rs80 crore, respectively.
Meanwhile, in the last one year, the IGL stock has appreciated 37% compared with about 1% fall in the BSE-500 Index. While analysts are expecting the company’s financial performance to improve in the near term, the stock seems to have factored in most of these positives at the current levels.
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