Pricing Model of Indraprastha Gas Limited

Case Title: Pricing model of Indraprastha Gas Limited (IGL)

Subject area

The case is written on the pricing model of Indraprastha Gas Limited for CNG and commercial, industrial & domestic PNG. It starts with the analysis of various customers of the IGL and moves forward to the different heads where capital and revenue expenditure occurs. The case also provides insights about the forecasted models of demands from the various customers and its impact on the profit after tax of the company. In case, the pricing model is studied with the help of desired profit margin. It provides information about the important pillars to be studied in terms of expenditure and revenue for a gas supplying company to emerge out as a profit making player. Apart from these learnings, it also teaches how to incorporate legal and government obligations in terms of excise duty, discount and tax.

Study level

The case can provide great assistance to following courses:

• Graduate Engineer Training programs for manufacturing industry where the trainees can understand the fixed costs and variable costs involved in a business to customer centered manufacturing organization. Apart from the cost analysis, the case can be used as a tool for studying the pricing model of the commodities and understand the impact of price on the bottom line of the company. The case also provides how to understand the business better in terms of measuring profit as per the commodity that is being sold.
• MBA/Post Graduation programs to teach the financial planning, management accounting, cost accounting and financial accounting. The case provides relation between the various costs and profit, which are essential parts of any elementary financial and accounting subject.
• Managers and executives can learn the importance of forecasting and how forecasting can be used to ensure more and more profit. In case, the profit is eventually made to relate to the product, so this can help the managers and executives to actually understand how to demonstrate business & profit in terms of product being sold/serviced. Also, one can learn about the various fixed costs and variable costs involved in a B2C pseudo manufacturing company.

Case overview

Indraprastha Gas Limited (IGL) was started as a one stop solution for conventional pick & drop cylinder LPG cylinder for customers and industries and as an alternative to conventional source of fuel e.g. Petrol/diesel in automobiles and coal in industries along with the goal providing green and clean life to pollution ridden Delhi population. It started in 1998 as a Joint venture of GAIL & BPCL with National Capitol Territory of Delhi as other major equity holder. From its start in 1999 with only 9 CNG stations and 1000 PNG consumers, IGL has reached a compression capacity of 68.5 lakh kg/day, providing green and clean fuel to over 8 lakhs vehicles, 6 lakhs customer, 1500 commercial customers and 700 industrial customers with 325 installed CNG stations. It has the reputation of fueling the largest CNG Bus fleet in the world. As the magnitude shows the penetration of IGL in the lives of customers, it becomes more and more important to provide the CNG and PNG at a cost that seems reasonable to various customers and acceptable to the company. The higher sales are important for expanding the web of CNG and PNG connections across Delhi and its neighbor cities. Apart from these factors, the price is also affected by the government obligations and discounts. The pricing model is designed to understand the relation between various fixed/variable costs, sales volume of the product. It also incorporates how forecasting and relevant profit margins are set to provide CNG/PNG at a reasonable price.