Sunday, September 20, 2009

EPS Rs 12.32 Book Value Rs 48.81

About the company:
Incorporated in 1998, IGL took over Delhi City Gas Distribution Project in 1999 from GAIL (India) Limited (Formerly Gas Authority of India Limited ). The project was started to lay the network for the distribution of natural gas in the National Capital Territory of Delhi to consumers in the domestic, transport, and commercial sectors. With the backing of strong promoters – GAIL (India) Ltd. and Bharat Petroleum Corporation Ltd. (BPCL) – IGL plans to provide natural gas in the entire capital region.
The transport sector uses natural gas as Compressed Natural Gas (CNG) , while the domestic and commercial sectors use it as Piped Naural Gas (PNG).

CNG:- The next generation auto fuel:-
Compressed Natural Gas (CNG) is a fossil fuel substitute for gasoline (petrol), diesel, or propane fuel. Although its combustion does produce greenhouse gases, it is a more environmentally clean alternative to those fuels, and it is much safer than other fuels in the event of a spill (natural gas is lighter than air, and disperses quickly when released).
IGL has more than 130 stations in NCR and its network is distributed between Motherstations, Mega stations, Daughter Booster Stations and Online Stations which are conveniently made to avoid as much rush as possible at busy hours.
PNG - The most convenient next generation kitchen fuel:-
PNG or Piped Natural Gas is natural gas that is piped to homes and establishments. It is considered as a safe fuel as it reduces possibility of leakage, it is lighter than air. With its narrower range of ignition there is in-built safety in PNG installation and round-the-clock customer support which is necessary in case of unfortunate accidents. The billing is made based on meter reading of gas consumed and natural gas can also be used for water heating, space heating and air conditioning. 

Further catalysts:-
IGL is spreading fast as it now has 10 CNG outlets outside Delhi (6 in Noida, 2 each in Ghaziabad and Greater Noida). IGL’s sales volume CAGR has been impressive at 13% over FY05-09, led by 3.5x growth in CNG vehicles and 5x increase in domestic PNG customers. However, a large portion of the market is untapped and offers huge growth potential for IGL. Key growth drivers for CNG within National Capital Territory (NCT) would be new buses specially sourced for the Commonwealth Games, private vehicles, taxis, callcentre SUVs, LCVs and replacement of existing fleet. PNG growth is likely to be on account of a huge untapped domestic market. The conversion to CNG in NCR has been just around 15% so far and as government becomes more aware of environmental cleanliness, more and more vehicles are going to be converted which can be a major booster for IGL.
From where the gas can come?
As IGL is tapping other cities like Ghaziabad, Noida, Greater Noida, it is going to need more and more gas to comply with the rising demand of CNG. The demand will rise more in case IGL bids for authorization in Gurgaon and Faridabad also. The recent contract with RIL wherein the company can draw additional 0.3-2.1mmscmd from RIL’s KG-D6 block, will help sustain incremental growth beyond APM gas allocation of 2mmscmd at present.

Three-wheelers, Four-wheelers and Six-wheelers are already running on CNG but now IGL is testing using CNG in Railways to run diesel locomotives which, if successful, can be a major business winner for IGL. Strong promoter background like GAIL and BPCL is a special combination as GAIL is experienced in laying pipelines and BPCL has a big network for marketing, both being government companies, the growth potential is very high for IGL.

Technical Outlook:-
INDRAPRASTHA GAS stock shows a rounding bottom pattern but given current overstretched valuations in overall market the stock may see some downside of 10-15% also if broader markets start correcting. The stock should be accumulated from 1-2 year point of view with targets above Rs 250 in mind. IGL looking for a pact with Reliance for city gas distribution

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