Dalal Street Investments

Indraprastha Gas – CNG Price Hike – Impact

June 17, 2010

IGL’s blended gas costs increased by INR 3.3/kg as gas prices were increased from INR 3840/tscm to ~INR 6300/tscm (USD 3.84/mmbtu). We had assumed IGL to increase ~INR 3/kg for consumers.

However, IGL has increased the prices by INR 5.6/kg. We believe that this move of IGL is due to the following reasons:
IGL has used the opportunity to pass-on higher price of RIL’s KG-D6 gas. We estimate that IGL needs to peg the selling price of CNG at INR 31/kg to make the same contribution margins that it used to make from APM gas. There may be resistance in price increases and hence IGL might have increased by INR 5.6/kg in expectation to reduce the prices after there is some political backlash.

At INR 241, IGL trades at 14.9x FY11E and 13.1x FY12E EPS.


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