I am not qualified/experienced enough to try out Special Situations. Hence creating the thread under Company Q&A.
IGL is a monopoly catering to Delhi and NCR region. CNG is being supplied for transport and PNG for households. Industries get Regasified LNG.
1 year back, Petroleum and Natural Gas Regulatory Board ( PNGRB ) had ordered IGL to cut tariff by 63 % and retrospectively had also asked IGL to refund the difference to it customers from April 2008-April 2012.
IGL approached delhi high court questioning the power of PNGRB to regulate tariff and compression charge.
Delhi high court ruled in favour of IGL. The aggrieved party ( PNGRB ) tapped the doors of Supreme Court by filing a Special Leave Petition against the delhi HC.
The next date of hearing is on 16/07/2013. Most of them are hoping for a favourable outcome to IGL.
In the meantime government increased the prices of natural gas to 8.4$ which will be applicable from April 2014 for a period of 5 years. Hence even if IGL gets a favourable order from SC, it will be negated by hike in domestic gas prices.
Before the adverse order of PNGRB, IGL used to trade @16 pe. Now its @11.09.
SC rules in favour of IGL by upholding delhi high court order.
Will the market re-rate IGL?. If the market does, upside potential is 44 % from current levels by assigning a pe of 16 and eps of 25.29 (ttm).
Assuming positive order from SC, taking into account the rise of natural gas prices to 8.4$ from next year, will IGL be able to maintain its margins ?
)—>In the past IGL has passed on the hike to it customers. Recently i.e on June 24th it raised CNG prices by 2rs and PNG by 1 rupee for delhi and CNG price hike of 2.25 rs for other regions.
SC rules against IGL.
IGL will crash. Downside potential ? Will need seniors help to calculate the risk.
Leaving the special situation aside -
Will natural gas lose its shine compared to diesel from next year ?
May be, due to hike of natural gas prices.
Going forward diesel will be deregulated completely and subsidy will be targeted.At present the subsidy is at 8.10 rs. Hence difference between diesel and natural gas will not be huge.
IGL may lose its customers from transport sector if diesel will cost less than natural gas. ( But i read its mandatory for LCV’s to use CNG in delhi. Can anyone confirm)?.
But i doubt it will lose household connections.
And going forward, we can expect upside in topline due to the following factors
1.Kanpur and Bareilly in UP will contribute. IGL has invested 69cr in Central U.P Gas Limited.
( CUGL Revenues were 124 cr and eps were 3.52 for 2012 ).
2.License to start operations in Unnao and Jhansi.
3.Delhi government is hoping to add more buses to its fleet.
Disclosure- No position