Indraprastha Gas CNG growth offsets Q1 margin pressure from higher gas costs

Investment View and Target Price

In its August 15, 2026 Q1FY27 result update, Prabhudas Lilladher maintained its BUY recommendation on Indraprastha Gas (IGL). The broker believes CNG volume growth remains intact despite acute first-quarter margin pressure caused by higher gas input costs.

Prabhudas Lilladher reduced its target price to Rs 178 per share from Rs 181, following lower FY27E and FY28E EPS estimates, while raising its CNG and total gas-volume forecasts. The report was issued when IGL's CMP was Rs 152 per share.

Q1FY27 Financial Performance

IGL reported Q1FY27 revenue of Rs 45.8 billion, representing growth of 10.1 per cent quarter-on-quarter and 17.1 per cent year-on-year. EBITDA declined 30.1 per cent quarter-on-quarter and 42.3 per cent year-on-year to Rs 3.0 billion. This was broadly in line with Prabhudas Lilladher's Rs 3.1 billion estimate but below the Bloomberg consensus estimate of Rs 3.6 billion.

EBITDA per standard cubic metre was Rs 3.4, compared with Rs 4.8 in Q4FY26 and Rs 6.2 in Q1FY26, and was broadly in line with the broker's Rs 3.5 estimate. PAT declined 32.8 per cent quarter-on-quarter and 47.7 per cent year-on-year to Rs 1.9 billion, below Prabhudas Lilladher's Rs 2.3 billion estimate and Bloomberg consensus of Rs 2.5 billion. The PAT miss reflected higher depreciation and amortisation and lower other income.

Gas Costs and Margin Pressure

The margin decline was driven by higher gas costs rather than weak pricing. Gross realisation increased 9.3 per cent quarter-on-quarter and 10.7 per cent year-on-year to Rs 52.1 per standard cubic metre following Q1FY27 price hikes.

However, gas cost rose 17.7 per cent quarter-on-quarter and 22.9 per cent year-on-year to Rs 43.3 per standard cubic metre amid higher sourcing costs linked to geopolitical disruptions. Gross margin consequently fell to Rs 8.8 per standard cubic metre. Lower operating expenditure, at Rs 5.5 per standard cubic metre, partly cushioned the impact.

CNG and Gas-Volume Trends

Total gas sales volume was broadly flat quarter-on-quarter at 9.7 mmscmd, but increased 5.8 per cent year-on-year. CNG volume rose 2.1 per cent quarter-on-quarter and 6.4 per cent year-on-year to 7.2 mmscmd.

PNG volume declined 6.9 per cent quarter-on-quarter to 2.4 mmscmd, mainly because PNG-D and PNG-I/C volumes fell. DTC volume was negligible in Q1FY27 versus about 1.5 lakh kg per day in Q1FY26.

Excluding DTC, CNG volume grew 9 per cent year-on-year in Delhi and 27 per cent outside Delhi, while IGL's ex-DTC CNG growth was 11 per cent. Vehicle additions and conversions increased to about 27,300 per month over the preceding six months, compared with about 18,000 earlier.

Management Commentary and Operating Plans

Management reiterated its long-term EBITDA guidance of Rs 7 per standard cubic metre, although it said quarterly guidance is difficult. It intends to maintain a healthy price differential versus petrol and diesel.

• Domestic gas represented 48 per cent of Q1FY27 sourcing, while imports represented 52 per cent. Spot sourcing was about 3 per cent.
• FY27 capital expenditure is guided at about Rs 18-20 billion, including Rs 12-15 billion for core city-gas-distribution infrastructure and Rs 5-6 billion for business development and diversification.
• IGL's domestic PNG customer base crossed 35 lakh after the addition of around 1 lakh customers in Q1FY27.

Broker Estimates and Valuation

Prabhudas Lilladher raised its FY27E and FY28E CNG volume estimates to 7.4 mmscmd and 7.8 mmscmd, respectively, from 7.2 mmscmd and 7.7 mmscmd. Total-volume estimates increased to 10.0 mmscmd and 10.6 mmscmd from 9.8 mmscmd and 10.5 mmscmd.

The broker values IGL's standalone business at 11 times FY28E adjusted EPS and assigns Rs 28 per share for investments after applying a 25 per cent holding-company discount. The target price was reduced to Rs 178 per share from Rs 181.

Key Risks and Policy Considerations

• Sustained high gas input costs could continue to pressure margins.
• Lower PNG volumes could weaken the operating outlook.
• The Delhi EV mandate could affect CNG volumes. Management expects the policy to have less than 1 per cent impact on CNG volumes in FY27 and around 2-3 per cent by 2030.