1) Current volumes are ~0.18mmscmd, against 0.17-0.18mmscmd average in FY15. FY15 volume growth was largely flat due to weakness in industrial as well as CNG sales. Industrial volumes were impacted by adverse economics owing to cheap alternate fuels like furnace oil and pricier Qatar Rasgas contract, further magnified by high taxation in U.P (26% in gas compared to less than 10% in FO). CNG sales were also impacted in FY15 as CNG buses were removed due to order from state govt.
2) In Kanpur, volume outlook is near saturation level though other areas like Bareilly, Unnao and Jhansi would see growth. In FY16, volume growth is expected to recover to 4-5% YoY.
3) CUGL’s sales mix is 76% CNG and 2% domestic PNG which is met fully by domestic gas (0.14mmscmd) in the ratio 80% APM and 20% PMT. CUGL is targeting at increasing domestic PNG connections aggressively. CNG/dom. PNG volume growth to accelerate from FY15 levels. CUGL has 16 CNG outlets.
4) Industrial and commercial PNG sales mix is 21% and 1% respectively. Industrial PNG prices are in the Rs.37-38/scm range which is quite high compared to alternate fuels. CUGL sources 0.01mmscmd gas from Qatar Rasgas where demand is low. The company like its peers is also blending the same with cheaper spot LNG to make it attractive.
In FY15, CUGL’s revenues have declined 4% YoY to Rs.2.06bn versus 34% growth in FY14 due to retail price cuts and weak volume growth. However PAT was still up 10% YoY at Rs.277mn which may be due to better margins and lower finance cost. This translates into an EPS contribution of Rs.1/sh for IGL. MNGL on the other hand reported a 26% jump in revenues to Rs.5bn but PAT declined 4% YoY to Rs.520mn. We believe MNGL’s earnings were impacted by lower margins on industrial sales. MNGL’s EPS contribution to IGL is Rs.1.9/sh. Hence combined contribution of the two entity is Rs.2.8/sh to IGL’s EPS in FY15. However, in Q1FY16, EPS contribution was Rs.0.86/sh which implies an annual run-rate of Rs.3.4/sh means a 20%+ YoY profit growth. At a reasonable 12x PE, valuation of the two entities is ~Rs.40/sh to IGL’s SOTP.