1QFY2012 Result Update | Oil & Gas

August 3, 2011

IGL
Performance Highlights
Y/E March (` cr) Total operating income EBITDA EBITDA margin (%) PAT
Source: Company, Angel Research

NEUTRAL
CMP Target Price
1QFY11 336 108 32.0 57 % chg (yoy) 59.8 47.1 (256)bp 39.6 4QFY11 % chg (qoq) 511 137 26.8 69 5.2 15.6 265bp 16.0

`419 -

1QFY12 537 158 29.5 80

Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code

Oil & Gas 5,862 0.5 428/285 51467 10 17,941 5,402 IGAS.BO IGL@IN

IGL reported robust top-line growth of 59.8% yoy in 1QFY2012. However, EBITDA and PAT grew by only 47.1% yoy and 39.6% yoy on account of higher gas procurement and interest costs. We maintain our Neutral view on the stock. Robust volume growth continues: For 1QFY2012, IGL reported a 59.8% yoy increase in total operating income to `537cr on account of robust volume growth and price hikes taken over the past one year. CNG volumes increased by 13.6% yoy to 161.3mnkg, whereas PNG volumes grew by 82.5% yoy to 64.8mmscm. Average gross CNG realisations increased by 29.8% yoy to `29.1/kg. Average PNG realisations increased by 21.5% yoy to `19.6/scm. OPM contracts to 29.5%: Gas sourcing cost increased by 80.0% yoy to `301cr during the quarter. EBITDA margin contracted by 256bp yoy to 29.5% on account of increased gas prices and other expenditure. PAT grew by 39.6% yoy to `80cr on account of robust top-line growth. Outlook and valuation: The hike in CNG and PNG prices has reduced concerns on the margin front. However, as the proportion of costly gas is expected to increase, we expect the companys margin to soften in the years ahead. Nevertheless, robust volume growth will ensure the companys growth ahead. Currently, we do not see immediate triggers for the stock except for winning the bid outside NCR for city gas distribution. On the valuation front, at the current level, the stock is available at 17.8x and 16.7x FY2012E and FY2013E earnings, respectively. We remain Neutral on the stock. Key financials
Y/E March (` cr) Total operating Income % chg Net profit % chg OPM (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 45.0 23.5 16.9 14.6

Abs. (%) Sensex IGL

3m (3.2) 32.9

1yr (1.0) 39.8

3yr 22.4 280.7

FY2010 1,078 26.4 215 24.9 35.3 15.4 27.2 7.1 28.6 38.1 5.4 15.2

FY2011 1,744 61.8 260 20.5 28.2 18.6 22.6 5.8 28.4 33.2 3.6 12.7

FY2012E 2,288 31.2 329 26.6 28.2 23.5 17.8 4.7 29.1 33.1 2.7 9.5

FY2013E 2,723 19.0 351 6.9 25.7 25.1 16.7 3.8 25.3 31.0 2.2 8.7

Bhavesh Chauhan
Tel: 022 3935 7800 Ext: 6821 bhaveshu.chauhan@angelbroking.com deepak.pareek@angeltrade.com

Please refer to important disclosures at the end of this report

IGL | 1QFY2012 Result Update

Exhibit 1: 1QFY2012 performance

Y/E March (` cr) Total Operating Income COGS Total operating expenditure EBITDA EBITDA Margin (%) Other Income Depreciation Interest PBT PBT Margin (%) Total Tax % of PBT PAT PAT Margin (%)
Source: Company, Angel Research

1QFY2012 537 301 379 158 29.5 1 32 9 118 22.0 38 32.4 80 14.9

1QFY2011 336 167 229 108 32.0 1 23 86 25.5 28 33.1 57 17.1

% chg (yoy) 4QFY2011 % chg (qoq) 59.8 80.0 65.9 47.1 23.7 39.5 38.3 35.6 39.6 511 302 374 137 26.8 1 30 7 101 19.8 32 31.7 69 13.5 16.0 20.0 34.8 7.4 28.7 17.3 5.2 (0.5) 1.4 15.6

FY2011 1,744 984 1,252 492 28.2 9 103 13 386 22.1 126 32.7 260 14.9

FY2010 1,078 495 697 381 35.3 21 77 0 324 30.1 109 33.6 215 20

% chg (yoy) 61.8 98.7 79.5 29.3 (55.1) 32.8 18.9 15.6 20.6

Operating revenue up 59.8% yoy: For 1QFY2012, IGL reported a 59.8% yoy increase in total operating income to `537cr on account of robust volume growth and price hikes taken over the past one year. CNG volumes increased by 13.6% yoy to 161.3mnkg, whereas PNG volumes increased by 82.5% yoy to 64.8mmscm during the quarter. Average gross CNG realisations increased by 29.8% yoy to `29.1/kg mainly due to several price hikes taken over the past one year. Average PNG realisations increased by 21.5% yoy to `19.6/scm due to the price hike taken to pass on the higher gas cost.

Exhibit 2: Higher CNG volumes and realisation...

165 160 155 150 145 140 135 130 125 120 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 CNG volumes Gross realisation-RHS 35 30 25

Exhibit 3: and higher PNG volume and realisation...

70 60 50 40 30 20 10 0 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 PNG volumes Gross realisation-RHS 5 0 25 20

15 10 5 -

(` per kg)

(mn kg)

20

10

Source: Company, Angel Research

Source: Company, Angel Research

August 3, 2011

(` per scm)

(mmscm)

15

IGL | 1QFY2012 Result Update

Exhibit 4: led to operating revenue growth of 59.8% yoy

600 500 400 62.9 43.7 26.8 59.7 76.3 90.0 80.0 70.0 59.8 60.0 40.0 30.0 20.0 10.0 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 Total operating revenues
Source: Company, Angel Research

(` cr)

200 100 -

Operating revenues growth (RHS)

OPM contracts to 29.5%: Gas sourcing cost increased by 80.0% yoy to `301cr during the quarter. Higher gas cost was on account of the increase in APM gas price and procurement of RLNG for incremental volume growth. Staff cost during the quarter grew by 8.4% yoy to `10cr, whereas other operating expenditure rose substantially by 31.1% yoy to `69cr. Thus, OPM contracted by 256bp yoy to 29.5% on account of increased gas prices and other expenditure, resulting in operating profit growth of 47.0% yoy to `158cr.

Exhibit 5: Operating performance trend

180 160 140 120 100 80 60 40 20 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 Operating Profit
Source: Company, Angel Research

32.8

32.1 27.9 28.4 26.9

29.5

35.0 30.0 25.0 20.0 15.0 10.0

(` cr)

Operating Margins (RHS)

PAT increases by 39.6% yoy: Depreciation cost increased by 39.5% yoy to `32cr on account of the capex incurred during the year. Interest cost stood at `9cr in 1QFY2012 compared to nil in 1QFY2011. Hence, PAT grew by 39.6% yoy to `80cr on account of robust top-line growth.

August 3, 2011

(%)

(%)

300

50.0

IGL | 1QFY2012 Result Update

Exhibit 6: PAT growth trend

90 80 70 60 27.8 50 40 30 20 10 4QFY10 1QFY11 2QFY11 PAT
Source: Company, Angel Research

39.6 34.2

45.0 40.0 35.0 30.0 20.0 25.0

(` cr)

18.8

15.4

14.1

15.0 10.0 5.0 -

3QFY11

4QFY11

1QFY12

PAT growth (RHS)

August 3, 2011

(%)

IGL | 1QFY2012 Result Update

Investment arguments
Volumes to propel profitability: IGL has exhibited strong volume growth over the past few years. We expect the trend to continue going ahead, given that penetration of CNG vehicles in Delhi is still at lower levels and the launch of newer CNG-variant cars by automotive companies could keep conversions in the high growth orbit. The PNG segment is also expected to continue its robust performance on account of lower penetration in NCR and higher demand. Now with most of IGL's CNG infrastructure in place, the company has turned its focus towards the fast-growing PNG segment.

Outlook and valuation

The hike in CNG and PNG prices has reduced concerns on the margin front. Further, relative ease in the pass through of APM gas price hike is indicative of the absence of regulatory risks in the near term. We have assumed marketing margins to be self-regulated due to competitive forces and not being subject to PNGRB regulations. However, as the proportion of costly gas is expected to increase, we expect the companys margin to soften in the years ahead. Nevertheless, robust volume growth will ensure the companys growth ahead. On the valuation front, at current levels, the stock is available at 17.8x and 16.7x FY2012E and FY2013E earnings, respectively. Currently, we do not see immediate triggers for the stock except for winning the bid outside NCR for city gas distribution. Thus, with most of the positives factored in, we maintain our Neutral view on IGL.

Exhibit 7: Key assumptions

Particulars CNG volumes (mmscm) PNG volumes (mmscm)
Source: Company, Angel Research

FY2012E 933 247

FY2013E 1,038 309

Exhibit 8: Angel EPS forecast vs. consensus

Angel Forecast FY2012E FY2013E
Source: Company, Angel Research

Bloomberg Consensus 23.2 26.2

Variation (%) 1.3 (4.2)

23.5 25.1

Exhibit 9: Recommendation summary

Company GAIL IGL GSPL Petronet CMP (`) 461 419 104 171 TP (`) 508 Accum. Neutral Neutral Neutral Reco. Mcap (` cr) 58,426 5,862 5,851 12,859 Upside (%) 10 P/E (x) FY12E 14.3 17.8 11.3 14.1 FY13E 12.9 16.7 11.1 12.9 P/BV (x) FY12E 2.6 4.7 2.4 3.8 FY13E 2.3 3.8 2.1 3.0 EV/EBITDA (x) FY12E 8.8 9.5 7.1 8.7 FY13E 7.7 8.7 6.8 7.5 RoE (%) FY12E 19.6 29.1 23.3 29.8 FY13E 18.7 25.3 20.0 26.0 RoCE (%) FY12E FY13E 22.3 33.1 21.6 22.5 21.7 31.0 19.7 21.1

Source: Angel Research

August 3, 2011

IGL | 1QFY2012 Result Update

Exhibit 10: One-year forward P/E

600 500

Share price (`)

400 300 200 100 0

Aug-08

Dec-10

Apr-06

Mar-09

Nov-06

Oct-09

7x
Source: Company, Angel Research

10x

13x

16x

May-10

Jun-07

Jan-08

19x

Jul-11

August 3, 2011

IGL | 1QFY2012 Result Update

Profit & Loss Statement

Y/E March (` cr) Gross sales Less: Excise duty Net Sales Other operating income Total operating income % chg Total Expenditure Purchase of gas Staff expenditure Other operating expenditure EBITDA % chg (% of Net Sales) Depreciation and amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Share in profit of Associates Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earnings of asso. Less: Minority interest (MI) Prior period items PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E 810 104 706 706 15.0 406 303 15 88 300 17.6 42.5 63 237 21.5 33.6 23 9.0 261 26.9 261 86 33.1 174 174 174 26.5 24.7 12.5 12.5 26.5 962 109 853 853 20.8 553 411 24 118 300 0.0 35.2 67 233 (2.0) 27.3 26 10.1 259 (0.8) 259 86 33.4 172 172 172 (1.1) 20.2 12.3 12.3 (1.1) 1,213 135 1,078 1,078 26.4 697 495 31 172 381 26.9 35.3 77 303 30.4 28.1 21 6.5 324 25.3 324 109 33.6 215 215 215 24.9 20.0 15.4 15.4 24.9 1,952 207 1,744 1,744 61.8 1,252 984 38 230 492 29.3 28.2 103 389 28.4 22.3 13 9 2.5 386 18.9 386 126 32.7 260 260 260 20.5 14.9 18.6 18.6 20.5 2,574 287 2,288 2,288 31.2 1,642 1,368 45 229 646 31.3 28.2 129 517 32.8 22.6 40 13 2.7 490 27.1 490 161 32.9 329 329 329 26.6 14.4 23.5 23.5 26.6 3,065 341 2,723 2,723 19.0 2,023 1,706 54 263 700 8.4 25.7 153 548 5.9 20.1 35 11 2.1 524 6.8 524 172 32.9 351 351 351 6.9 12.9 25.1 25.1 6.9

August 3, 2011

IGL | 1QFY2012 Result Update

Balance Sheet
Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Minority Interest Total Loans Net Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 1,716 557 1,159 342 42 226 17 96 113 261 (35) 1,508 2,152 686 1,466 270 42 253 53 57 143 336 (82) 1,696 2,545 838 1,707 252 42 340 84 58 197 421 (81) 1,919 1,716 557 1,159 342 42 226 17 96 113 261 (35) 1,508 2,152 686 1,466 270 42 253 53 57 143 336 (82) 1,696 2,545 838 1,707 252 42 340 84 58 197 421 (81) 1,919 140 863 1,003 463 41 1,508 140 1,114 1,254 400 41 1,696 140 1,388 1,528 350 41 1,919 140 863 1,003 463 41 1,508 140 1,114 1,254 400 41 1,696 140 1,388 1,528 350 41 1,919 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

August 3, 2011

IGL | 1QFY2012 Result Update

Cash Flow Statement

Y/E March (` cr) Profit before tax Depreciation Dep. accepted during the year Change in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E 261 63 1 (2) (23) (93) 207 (83) 19 23 (41) (49) (18) (67) 99 40 140 259 67 20 (18) (26) (89) 212 (172) 5 26 (141) (66) 0 (65) 6 140 146 324 77 29 25 (21) (106) 328 (389) 87 21 (281) (73) 1 (72) (25) 146 121 386 103 62 (9) (6) (114) 421 (771) (6) (767) 345 (73) 262 (79) 138 59 496 129 (63) 175 (13) (150) 574 (364) 13 (351) (63) (84) (123) (187) 36 59 95 530 153 (50) 106 (11) (163) 564 (375) 11 (364) (50) (84) 30 (169) 31 95 126

August 3, 2011

IGL | 1QFY2012 Result Update

Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV/Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis (%) EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT/Int.) (0.4) (0.8) (0.3) (0.7) (0.1) (0.2) 0.4 0.8 29.6 0.2 0.5 12.9 0.1 0.3 15.6 1.1 12 11 68 (30) 1.1 10 12 54 (21) 1.1 9 11 56 (18) 1.2 7 11 44 (13) 1.2 8 12 47 (15) 1.2 11 12 52 (20) 45.0 86.4 33.4 36.0 71.2 27.4 38.1 64.7 28.6 33.2 47.9 28.4 33.1 43.9 29.1 31.0 39.3 25.3 33.6 66.9 2.2 49.7 49.7 27.3 66.6 2.1 39.0 39.0 28.1 66.4 1.8 33.5 33.5 22.3 66.0 1.6 23.9 23.9 22.6 67.5 1.5 23.5 23.5 20.1 67.5 1.6 22.3 22.3 12.5 12.5 16.9 4.0 41.2 12.3 12.3 17.1 4.0 48.8 15.4 15.4 20.9 5.0 59.0 18.6 18.6 25.9 5.0 71.7 23.5 23.5 32.7 6.0 89.6 25.1 25.1 36.0 6.0 109.1 33.6 24.7 10.2 1.0 8.0 18.7 9.3 34.0 24.4 8.6 1.0 6.6 18.8 7.7 27.2 20.0 7.1 1.2 5.4 15.2 6.4 22.6 16.2 5.8 1.2 3.6 12.7 4.2 17.8 12.8 4.7 1.4 2.7 9.5 3.6 16.7 11.6 3.8 1.4 2.2 8.7 3.2 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

August 3, 2011

10

IGL | 1QFY2012 Result Update

Research Team Tel: 022 - 3935 7800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

IGL No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns) :

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

August 3, 2011

11