Friday, February 10, 2012

Indraprastha Gas Sees Significant Buy by HDFC Standard Life Insurance

By Staff Reporter

Indraprastha Gas Ltd (BSE: 532514, NSE: IGL) counter on Thursday witnessed a significant buy of 7.88 lakh shares by HDFC Standard Life Insurance Company Ltd, which amounts to 0.56% of the total shares in the company. This significant buy was undertaken by HDFC Standard Life Insurance in NSE.

Indraprastha Gas Ltd (IGL) is a public sector undertaking (PSU) selling natural gas products to residential, commercial, industrial, and transportation requirements in the National Capital Territory (NCT) of Delhi. IGL supplies Piped Natural Gas (PNG) to homes and commercial establishments, Re-gasified Liquefied Natural Gas (RLNG) to industrial establishments, and Compressed Natural Gas (CNG) to the automotive sector. 

Indraprastha Gas Ltd is promoted by two listed PSUs in the Oil & Gas Sector, Bharat Petroleum Corporation Ltd (BSE: 500547, NSE: BPCL) and Gas Authority of India Ltd (BSE: 532155, NSE: GAIL), each of which holds 22.5% stake to form a total promoter group stake of 45%.

HDFC Standard Life Insurance is one of India's leading private life insurance companies. It is a joint venture between Housing Development Finance Corporation Limited (BSE: 500010, NSE: HDFC), which is India's leading housing finance institution, and Standard Life plc (LSE: SL), a leading UK based provider of long-term savings and investment products. 

HDFC holds 72.37% shares and Standard Life (Mauritius Holding) Ltd. holds 26.00% of equity in the joint venture, while the rest is held by others.

Interestingly, the significant buy of IGL by HDFC Standard Life today was not against any selling by any identified institutions, but probably picked up from the wider market.

Indraprastha Gas has been a good fundamental performer over the past few years, and IGL had delivered an impressive performance in FY’11 with revenues doubling and net profit growing by 50%, over the previous year. While this performance continued in Q1 of this fiscal, soon after it fizzled out, and in both Q2 and Q3, IGL’s net profit fell on a QoQ basis.

The same was reflected in Indraprastha’s share price too. Unlike many comparable scrips, IGL had continued to surge till almost the end of Q2. The stock had its 52-Week High of Rs. 453.25 in BSE on September 8th, and from then on it had been a staggered fall, with a recent low of Rs. 315.05 reached on January 20th 2012. 

But it is noteworthy that unlike many scrips, Indraprastha Gas didn’t mark a new 52-Week Low in the most recent protracted downfall for the market, which shows the strength of the fundamental growth story seen here. IGL’s 52-Week Low of Rs. 285.10 is almost a year old, recorded on February 25th 2011 in BSE. Indraprastha somewhat participated in the recent relief rally in the market, but it’s move soon fizzled out due to the Q3 results.

HDFC Standard Life’s buy has come at this crucial juncture for the scrip. Indraprastha Gas already has good institutional investor support, with FIIs holding nearly 20% and DIIs holding almost 24%, making the total institutional holding at nearly 44%, which is relatively high by Indian standards. The Q3 SHP shows that both FII and DII stakes had increased further during the last quarter.

Major institutional holders of IGL include Sundaram Mutual Fund, Pinebridge Investments, Allard Growth Fund, Blackrock, DSP Blackrock, GMO Emerging Markets Fund, and LIC of India. Government of NCT of Delhi is holding a 5% stake, but is counted as a non-promoter in IGL.

One overhang on the Indraprastha Gas stock is an expected directive by the government capping the marketing margins of Oil & Gas companies. Due to its significant marketing activities with end-users of gas products, IGL is likely to take a greater hit among all such companies, if such a capping is eventually enforced. Another overhang on the stock is poor gas supply from KG-D6, which makes IGL rely more on sourcing the costlier RLNG.

HDFC Standard Life seems to have taken its buy cue from the nature of IGL’s challenges that may resolve soon. Though the net profit margin (NPM) now stands corrected at 10.40%, if fundamental improvement happens in the general business environment, IGL has the potential to repeat the nearly 15% NPM it delivered in FY’11. Because, margins were affected in Q3 more by depreciation and interest costs than any other causes. Revenues were robustly up, both on a YoY and QoQ basis, due to volume growth in its CNG & PNG businesses.

Another cue might be the strong support structure exhibited by IGL around Rs. 315. From the Q3 SHP it is clear that many existing institutional investors had lend IGL strong support, with the likes of LIC, Blackrock, Pinebridge, Allard etc buying at lower levels.

Indraprastha Gas Ltd closed yesterday’s trade in NSE at Rs. 337.50 up by 1.47% from the previous day’s close. The buy by HDFC was at Rs. 335.32 a share, making the total buy worth Rs. 26.41 crore.

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