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Indraprastha Gas is Poised for Growth And Offers a Good Entry Point

  • The share prices of gas distribution companies like Indraprastha Gas have crashed in the past few weeks because of fear about the plans of Petroleum and Natural Gas Regulatory Board (PNGRB) to cap the marketing margin for natural gas. However, analysts feel that these fears are exaggerated.First, domestic gas producers don't incur any marketing costs as the the government identifies and allocates the exact amount to be given to customers. So, the probability of the same cap being imposed on Indraprastha Gas, which imports a major chunk and distributes it directly to customers, is very less.

  • Second, the PNGRB has just been formed and may deal with the marketing margin only after pursuing more important issues like city gas distribution rollout, authorisation of transmission network, transmission tariffs, etc.However, the recent correction in price has brought down the valuation to the much desired level and this explains the increasing number of analysts boarding the 'buy' bandwagon. The consensus analyst rating has gone up from 3.65 to 4.02 in the past month.Strong volume growth: Due to its robust business model, Indraprastha Gas continued with its strong volume growth during the third quarter of 2011-12. The overall volume during this period grew by 26% compared with the same period last year, and by 2% compared with the previous quarter.

 

  • While the compressed natural gas (CNG) segment volume grew by 16% on a year-on-year basis, the piped natural gas (PNG) grew by 64% during the same period. Since CNG is more efficient than both petrol and diesel, its demand will shoot up once the government allows a hike in the prices of these products.
  • The penetration of PNG is low in India and the increased demand from households and industrial/ commercial consumers should continue to drive its growth in the coming years.

 

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