Indraprastha Gas Ltd (IGL) reported net sales of Rs8,552mn (6% ahead of our estimates) for Q2 FY13. The revenues were up by a healthy 43.1% yoy and 12.4% qoq. The positive beat in the revenues was on back of improved volume performance in both the CNG and PNG segment. CNG volumes at 196mn Kg were up by a hearty 5.8% qoq and 9.2% yoy. PNG volumes were recorded at 81.4mn scm, which implied a growth of 1.8% qoq and 19.4% yoy. 

CNG realizations jumped 28.1% yoy, while PNG realizations surged 29.2% yoy. This was on back of price hikes implemented during the quarter.

OPM at 24.2% came in better than our expectations and improved by 53bps qoq although on yoy basis it was down by 227bps. The sequential improvement in OPM was possible on the back of lower raw material costs as a percentage of sales (53 bps improvement). The gross margins/unit improved by 15.3% yoy and 9.1% qoq. Meanwhile, the yoy decline in OPM was explained by increase in contribution of high-cost R-LNG in the raw material basket. 

Depreciation was seen higher by 38.5% yoy and 11.8% qoq, owing to the capex program being executed by the company. PAT was recorded at Rs992mn, implying a growth of 28.5% yoy mainly led by the strong operational performance in the quarter.

Despite showing strong volume growth in both CNG and PNG segments, the key overhang on the stock remains the restrictions on marketing margins implemented by PNGRB. After the Delhi high court quashed the PNGRB petition, currently the issue is sub-judice at the Supreme Court. We have kept our recommendation under review for the final verdict on the issue. An adverse judgement can have a meaningful impact on the earnings.