Indraprastha Gas: Benefiting from the Changes in the Industry?

“Last financial year we have seen a lot of volatility and very high prices of natural gas due to geographical situation and supply related challenges across the world. The CGD industry has faced the challenge quite successfully. Now with implementation of the Kirit Parikh Committee report there is visibility in the natural gas price as the floor and ceiling rates of $4 & $6.5 per MMBTU respectively have been defined for two years with increment of $ 0.25 per MMBTU every year.”

– Management, Indraprastha Gas on Q1FY24 ConCall

Stock Data
Ticker	IGL
Exchange	NSE
Industry	GAS DISTRIBUTION

Price Performance
Last 5 Days	+4.11%
YTD	+14.77%
Last 12 Months	+14.85%

*As of 08.09.2023

Company Description:

Indraprastha Gas Limited (IGL) is a company in India primarily involved in the distribution of Compressed Natural Gas (CNG) and Piped Natural Gas (PNG). The company’s business model revolves around providing natural gas as a cleaner and more environmentally friendly alternative to traditional fuels like gasoline and diesel. Here are the key components of IGL’s business model:

CNG Distribution: IGL operates a network of CNG filling stations in the National Capital Region (NCR) of India, including Delhi, Noida, Greater Noida, Ghaziabad, and parts of Haryana. These stations supply CNG to vehicles, including cars, buses, and commercial vehicles. CNG is a popular choice among consumers and fleet operators due to its cost-effectiveness and lower environmental impact.

PNG Distribution: IGL also provides Piped Natural Gas (PNG) to residential, commercial, and industrial customers through a network of pipelines. PNG is a convenient and safe alternative to LPG (liquefied petroleum gas) for cooking, heating, and other domestic and industrial applications.

City Gas Distribution (CGD): IGL is involved in expanding its city gas distribution network to new areas in its operational region. This includes laying pipelines, setting up CNG stations, and connecting new customers to the PNG network.

Commercial and Industrial Customers: IGL serves a wide range of commercial and industrial customers, including hotels, restaurants, factories, and commercial establishments. These customers use PNG for various applications, such as cooking, heating, and industrial processes.

Kirit Parikh Committee Report:

“With the implementation of the Kirat Parikh committee report, the price of domestic natural gas has come down quite significantly. The price of RLNG has also started softening and the overall impact of gas price reduction is quite visible in the IGL Q1 results. The gross profit per SCM has increased from Rs. 12.04/SCM in Q4 last year to Rs.14.38/SCM in Q1 of current year. The EBITDA per SCM has also shown a robust growth of 37% and has increased to Rs. 8.61 per SCM from Rs. 6.28 per SCM in Q4. For CNG the average monthly addition/ conversion in Q1 is in the range of 14000 vehicles per month and in fact after the Kirat Parikh committee report recommendations were implemented and we reduce our prices we have seen increase in the conversions and June numbers were quite healthy at 14800 again which was around 13800 per month and we expect incoming months conversions will pick up more. On the PNG front, the domestic sales have increased by 20% and the commercial Segment has increased by 16%. However our industrial Segment has degrowth of 6%. Further, the growth in sales volume in New GA is starting to pick up and we expect the momentum will now continue.”

– Management, Indraprastha Gas on Q1FY24 ConCall

The Kirit Parikh committee was constituted in 2022 to review the existing pricing formula for domestically produced natural gas in India. The committee has recommended a complete liberalization of natural gas prices by January , 2026. The panel is likely to submit its report to the government on Wednesday, November 30.

The current method of gas pricing is that the government fixes the prices of gas produced from the old fields of state-run ONGC and OIL (these both account for about 80% of the annual gas output of 91 billion cubic meters in India). The need for revision of Gas Pricing is to ensure a reliable pricing regime, to raise domestic production, and to improve the environment by reducing dependence on coal and oil.

Some of the major recommendations of the committee include implementing a fixed pricing band for APM (Administrative Price Mechanism) gas from old fields, moving to a purely market-determined natural gas pricing system by 2027, linking the domestic gas price to 10% of the cost of imported crude oil, including gas in GST with compensation for five years, removing caps on gas prices within three years, and gradually exiting out of the gas allocation business1. The report also suggests that there should be no changes to the existing pricing formula for new fields and fields with difficult geology.

Financial Results:

Indraprastha Gas Ltd reported Revenues for Q1FY24 of ₹3,407.00 Crores up from ₹3,194.00 Crore year on year, a rise of 6.67%.

Total Expenses for Q1FY24 of ₹2,866.00 Crores up from ₹2,664.00 Crores year on year, a rise of 7.58%.

Consolidated Net Profit of ₹438.00 Crores up 4.04% from  ₹421.00 Crores in the same quarter of the previous year.

The Earnings per Share is ₹6.26, up 4.16% from ₹6.01 in the same quarter of the previous year.