Although growth in quarterly profits of Indraprastha Gas (IGL) was lower in the June 2010 quarter as compared to the previous two quarters, its outlook remains positive. The company witnessed a jump in its costs, eroding operating margins during the quarter. However, the price hikes it imposed towards the end of the quarter will revive its profits in the coming quarters. The company, which primarily depended on the APM gas for its business, witnessed a massive jump in costs with the government decontrolling gas prices. Higher volumes of RLNG and RIL’s KG basin gas also raised the raw material cost. The company increased its CNG as well as PNG prices subsequently but with a lag. IGL’s June quarter profit was 18% higher y-o-y at 57 crore on a 44% jump in sales at 335 crore. The company, which typically enjoys operating margins of around 35% on its net sales, registered a lower 32% margin during the June 2010 quarter. A fall in other income and higher depreciation lowered the growth rate in profits to 18%. Indraprastha Gas continues to do well on volumes with a 17.8% jump in CNG and doubled PNG sales during the June quarter against the year-ago period. The growth is expected to remain in double-digits at least for the next couple of years, thanks to the increasing number of CNG vehicles. The scrip, which is trading above 313, is now being valued at 19.6 times its earnings for the past 12 months. The company has marginally raised dividend to 4.5 per share for FY10 after paying 4 for two consecutive years. With the dividend yield of just 1.4% and a high P/E the company appears richly valued. While existing investors may continue to hold, new entrants may not find investment remunerative.
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