1. Presented by - Sanjay Kumar Sharma
Indraprasth Gas Limited (IGL) Profitable Monopoly with pricing freedom in a growing market
Note : Slides prepared only to explain business model of IGL and It is not an investment recommendation
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

2. Snapshot (10 Yr) Sales Growth (CAGR) 22.3 % NP Growth (CAGR) 13.05 %
Gas Quantity Sales Growth (CAGR)
14.64 %
Book Value Growth (CAGR)
23%
ROE (Average)
24.13%
Returns (CAGR)
24%
Gross Margin (Average)
45%
Net profit Margin (Average)
15%
Source : Screener , Annual reports
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

3. Can this company maintain its Grow momentum?
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

4. Presented by - Sanjay Kumar Sharma
Source :BP vision 2035
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

5. Presented by - Sanjay Kumar Sharma
Growth Drivers
CNG
Less polluting & convenient
Supply constraint market
Underpenetrated markets - headroom to grow
India- 5.5%, Delhi-30%, Pakistan-34%.
Government initiatives & Judicial encouragement
Conversions of Existing vehicles
New vehicles/2W CNG latest initiative
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

6. Growth Drivers Customer Cost Advantage
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

7. Presented by - Sanjay Kumar Sharma
Growth Drivers
PNG
Supply constraint market
Cost & Convenience advantage over LPG
Under penetration ( residential)
All India 1.2 %, Delhi - 17% , China – 34 %,Beijing- 70%
Higher fractions (C3 & C4) used in LPG add more value when used as feedstock in petrochemical
Government push due to lower carbon footprint
PNG (Commercial &Industrial) sector also has huge potential due to cost advantage
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

8. Presented by - Sanjay Kumar Sharma
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

9. Growth Drivers– New Business
Bidding for New cities – Government Targets 150 new cities for bidding
Networks being planned in all the smart cities
Have taken stake in CGD Companies operating in new markets (MNGL-Pune & Central UP- Kanpur & others)
Got Rewari authorisation recently
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

10. Demand potential of Gas- Highest Expected Growth for CGD
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

11. Will the growth be profitable ?
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

12. Presented by - Sanjay Kumar Sharma
Allocation Priority
CGD has been allocated highest priority in the domestic allocation of gas followed by other sectors.
Domestic Gas is being allocated to
CNG
PNG (Domestic)
Imported LNG being used for
PNG (Commercial & Industrial)
Allocation quantity for CNG & PNG (Domestic) has been increased to 100% from earlier 80%.
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

13. Segmental Profitability
CNG & PNG (Domestic) have highest margins due to
allocation of domestic gas and
ability to pass on the increased price as competing products viz. Diesel & LPG are priced higher
PNG (Commercial) also has decent margin despite relatively high price of imported LNG as feedback as it is priced well below commercial LPG.
PNG (Industrial) has lowest margins due to high price of imported LNG and Limited ability to pass on the price due to availability of cheaper alternatives (furnace oil etc.)
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

14. Presented by - Sanjay Kumar Sharma
IGL and MGL have similar profiles and have high profitability
compared to GGL (Gujarat Gas)
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

15. Presented by - Sanjay Kumar Sharma
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

16. Presented by - Sanjay Kumar Sharma
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

17. Presented by - Sanjay Kumar Sharma
New Pricing Formula for Domestic Gas (Cost for CGD)
Inclusion of natural gas trading hubs and exclusion of LNG (Prices) like Japan resulted in decreasing domestic prices
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

18. Presented by - Sanjay Kumar Sharma
Domestic Prices of Gas
Year
1997 to 2009
2010 to 13
FY 15
FY16
(H1)
(H2)
FY17
NG cost ($/mmbtu)
2 to 3 4
5.6
5.1
3.86
3.06
2.5
LNG Prices have also been renegotiated in 2016 which resulted in almost halving of LNG prices.
Reduction in RM prices have been driving the profitability in Q1 & Q2 of FY 17
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

19. Presented by - Sanjay Kumar Sharma
Gross Margin Variation with Cost of Raw Material E E
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

20. Presented by - Sanjay Kumar Sharma
Company has displayed strong capability to pass on the increased
cost to a great extent even during worst time. This was possible as
even after increasing prices it remains well below the prices of
competing fuels viz. LPG for domestic PNG etc.
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

21. Presented by - Sanjay Kumar Sharma
NPM has highest sensitivity to the Cost of Raw Material - All other costs very steady
- Good NPM maintained even during the highest RM cost environment
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

22. Presented by - Sanjay Kumar Sharma
Challenges/Threats
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

23. Presented by - Sanjay Kumar Sharma
Challenges/Threats
Regulation Risk
Availability of domestic gas
Prices of domestic gas
Prices of Imported gas (LNG)
Disruption by renewables
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

24. Presented by - Sanjay Kumar Sharma
Regulatory Framework
PNGRB Act & Regulations
Network Exclusivity ( 25 Years & beyond)
Marketing Exclusivity (5 years)
Marketing Margins
Transportation Charges
Compression Charges
Bid bond/Performance Guarantee
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

25. Supreme Court Judgment
Game changer CGD - Role of regulator has been defined in the judgment and has huge positive implications for all the CGD players.
Fixing customer price is not within PNGRB purview, players have freedom to fix prices within their GA.
Transportation charges & compression charges are applicable only for third party access after end of marketing exclusivity (not applicable for entities owning infrastructure)
Which other natural monopoly (viz. Power etc.) has power to fix customer prices?
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

26. Presented by - Sanjay Kumar Sharma
Quasi-Monopoly/ Moat ?
Infrastructure exclusivity for 25 years
Extendable for 10 years at a time.
Practically it will be a huge challenge for new entrant to built parallel infrastructure considering nature & cost of investment
Marketing exclusivity for five years
Uncompetitive for third party even after ME ends as
No domestic allocation of domestic gas
Marketer has to arrange its own gas (High cost of imported LNG)
Marketer has to show new customer commitment
Why to compete? Companies prefer new GA.
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

27. Presented by - Sanjay Kumar Sharma
Availability of domestic Gas – Sufficient even for most optimistic Growth
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

28. Presented by - Sanjay Kumar Sharma
Huge scope for CGD to grow by getting increased allocation at the cost of other sectors
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

29. Presented by - Sanjay Kumar Sharma
Domestic Gas Prices
Inclusion of natural gas trading hubs and exclusion of LNG (Prices) like Japan from the domestic price formula likely to keep domestic gas prices benign
Gas prices at Global trading hubs unlikely to harden in a hurry due to
Global supply of natural gas likely to remain favourable due to new sources of GAS viz shale gas etc.
Slow down in Key high growth consuming markets like China
Global focus on renewable based power plants will reduce demand of Gas as a power source
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

30. Presented by - Sanjay Kumar Sharma
LNG Prices
Many large Liquefaction plants (Australia/Africa/Middle East) have/will come on-stream during last/next few year
USA is now a gas surplus country and likely to start LNG export
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

31. Presented by - Sanjay Kumar Sharma
Valuation
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

32. Quoting at the highest band of historical valuation
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

33. Presented by - Sanjay Kumar Sharma
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

34. Presented by - Sanjay Kumar Sharma
Concluding Remarks
Many things are going right for the company during last few years such as benign raw material prices, more allocation of cheap domestic gas, removal of judicial/regulatory overhang, government in environmental overdrive etc.
Stock valuation is reflecting the growing optimism about the stock.
Some of the factors that have helped the business during last few years are cyclical and can reverse.
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

35. Presented by - Sanjay Kumar Sharma
Concluding Remarks
IGL is now a well-researched and discovered stock. Opportunities of asymmetrical gain due to information gap are limited.
Future price movement will depend on how long the present conditions prevail.
Company has shown good resilience during which was almost like a stress test with bad news on all fronts.
But considering growth opportunities & profitability and it is likely to be steady compounder in long term, particularly if bought at declines/corrections due to adverse news etc.
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma

36. Presented by - Sanjay Kumar Sharma
Q & A
Presented on - 22/01/2017
Presented by - Sanjay Kumar Sharma