Indraprastha Gas sees strong CNG traction despite gas-cost-led margin pressure

Investment View and Valuation

Motilal Oswal Financial Services Ltd. retained its Buy rating on Indraprastha Gas following its August 15, 2026 results update. The broker values the company at 13x December 2027E standalone P/E and adds Rs 41 per share for joint ventures, deriving a target price of Rs 193 per share.

The valuation is considered attractive as the stock trades at 12.6x one-year forward P/E, below its long-term mean minus one standard deviation. Motilal Oswal also estimates a FY27E dividend yield of 2.6 per cent and a 14 per cent EPS CAGR over FY26-28.

Q1 FY27 Operating Performance

Indraprastha Gas reported total gas volume of 9.7 mmscmd in Q1 FY27, up 6 per cent year on year and broadly in line with Motilal Oswal's estimate of 9.6 mmscmd. Segment-wise volumes were also broadly in line with estimates.

The broker particularly liked CNG growth excluding DTC and DIMTS buses. Delhi CNG volumes rose 9 per cent year on year, while total Indraprastha Gas CNG volumes excluding these buses increased 11 per cent. Volumes outside Delhi grew 27 per cent.

DTC volume is now almost zero, compared with 1.5 lakh kg per day in Q1 FY26, while DIMTS volume was stable quarter on quarter at 1.5 lakh kg per day. Management reported total CNG volume of 5.31 lakh kg per day and monthly CNG vehicle additions of 27,300 in Q1 FY27, compared with 18,000 in Q1 FY26.

Profitability Under Pressure from Gas Costs

Quarterly EBITDA per scm was Rs 3.4, in line with Motilal Oswal's estimate but down 45 per cent year on year. Realisation increased by approximately Rs 4.4 per scm quarter on quarter, but this was more than offset by an approximately Rs 6.5 per scm increase in gas cost. Operating expenditure declined by approximately Rs 0.6 per scm.

PAT was below the broker's estimate as the tax rate of 28.4 per cent was above expectations.

Gas Sourcing and Margin Outlook

Management stated that the Q1 FY27 sourcing mix comprised 48 per cent APM, NWG and HPHT gas, with 2.6 mmscmd of APM, 1.26 mmscmd of NWG and 0.7 mmscmd of HPHT. NWG allocation is expected to remain elevated, while HPHT allocation is expected to increase. The remaining 52 per cent comprised RLNG, including long-term, pooled and spot gas.

Management maintained its long-term EBITDA guidance of Rs 7 per scm but cautioned that the near-term margin outlook remains soft amid geopolitical uncertainty.

Forecasts and Key Risks

Motilal Oswal forecasts Indraprastha Gas volumes to grow at a 7 per cent CAGR over FY26-28. EBITDA per scm is expected to improve to Rs 5.5 in FY27E and Rs 6.2 in FY28E. The broker estimates EBITDA and PAT CAGR of 14 per cent each over FY26-28.

Key concerns include continued near-term margin pressure from gas costs and geopolitical uncertainty, as well as the Delhi EV policy. Management expects the recently approved policy, focused primarily on three-wheelers, to have only an approximately 3 per cent volume impact by FY30. However, the broker notes investor concern over future policy changes and a possible extension to passenger vehicles over the next two to three years.