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Informist, Friday, Jan. 24, 2025

By Anand JC

MUMBAI - The operating profit of city gas distributor Indraprastha Gas Ltd. is expected to take a severe knock due to the gas allocation cuts announced by the government in the final quarter of 2024, analysts said. The company will disclose its December quarter earnings on Monday.

The December quarter net profit of Indraprastha Gas is expected to plummet 43.2% on-year to INR 2.23 billion, as per an average of 14 analyst estimates. Sequentially, the fall may be much worse at 48.3%. The range of the net profit estimates vary widely, with Dolat Capital Market Pvt. Ltd.'s forecast of INR 1.3 billion being the lowest and Elara Securities (India) Pvt. Ltd.'s forecast of INR 3.25 billion being the highest.

This dismal outlook for the company can be attributed to the allocation cut by the government. In October and November, authorities cut supplies of low-priced natural gas produced from old fields to city gas distributors by as much as 40% due to limited output. However, in a minor relief to city gas distributors, the government on Dec. 31 eased this regulation by cutting the supply of natural gas to GAIL (India) Ltd. and Oil and Natural Gas Corp. Ltd. for production of liquefied petroleum gas, and diverted those volumes to city gas distributors.

Indraprastha Gas, along with other city gas distributors, explored hiking prices to offset this allocation cut, which stands to affect their profitability negatively. Kotak Institutional Equities noted that gas costs of the company would increase sharply, even as the retail price increases were marginal. The company did not hike gas prices in Delhi-National Capital Region, a key market.

The net sales of Indraprastha Gas are expected to increase just over 3% on-year for the December quarter to INR 36.60 billion, based on an average of 14 analyst views. Sequentially, this would translate to a 1% contraction.

OPERATING TROUBLES

Indraprastha Gas' earnings before interest, taxes, depreciation, and amortisation is expected to be INR 3.45 billion, according to an average of 13 analyst estimates. Sequentially, the company's operating profit is anticipated to tank 35.6%, and 38.2% on year. The company reported an EBITDA of INR 5.36 billion in the September quarter and INR 5.58 billion in the December quarter of 2023.

Dolat Capital's projection of INR 2.2 billion for EBITDA was the lowest among the  analysts, while Elara Securities' forcast of INR 4.83 billion was the highest. Nomura Equity Research expects a 30% on-year decline in EBITDA driven by a sharp fall in Indraprastha Gas' gross margins, reflecting the impact of lower gas allocation based on administered price mechanism, and higher prices of liquefied natural gas during the December quarter.

Analysts expect volumes of gas sold by Indraprastha Gas during the December quarter to increase, but this expansion will be offset by the shortfall in cheaper gas from old fields.

"We reckon IGL (Indraprastha Gas Ltd) volume shall rise 8% YoY owing to growth in private and commercial vehicle registrations...," Nuvama Wealth Management Ltd. said in a report. The brokerage expects Indraprastha Gas' EBITDA to fall 51% on-year and 48% sequentially due to the sharp increase in raw material prices caused by the twin gas de-allocation hits and lower-than-required price hikes to maintain margins. Over two-thirds of Indraprastha Gas' revenue comes from compressed natural gas, while the rest comes from piped natural gas.

Nirmal Bang Institutional Equities expects CNG volumes of the company to fall to 5.8 million standard cubic metre per day for the December quarter from 6.3 mscmd a year ago. However, Nomura expects the company's CNG volumes to increase 6% on year.

Motilal Oswal Financial Services notes that the company is facing multiple headwinds in volume growth currently. Given the fact that Indraprastha Gas has the highest exposure to CNG, it expects the company's margin to be impacted ‘most significantly' following the gas de-allocations. The brokerage remains cautious on the gas distributor from a long-term perspective, and has a sell rating on the company.

The company disclosed its September quarter earnings after market hours on Oct. 28. Between Oct. 29 and Jan. 23, shares of the company have depreciated 4.7%. On Thursday, shares of Indraprastha Gas closed at INR 391.60 on the National Stock Exchange, up 1.1%. 

Following are the Oct-Dec earnings estimates for Indraprastha Gas Ltd. based on reports from 14 brokerage firms in descending order of estimates of net profit:

End

Edited by Namrata Rao

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