Accumulate Indraprastha Gas Ltd For Target Rs.168 By Geojit Financial Services Ltd
Volume growth amid margin pressure
Indraprastha Gas Ltd (IGL), jointly promoted by Bharat Petroleum Corp Ltd and Gas Authority of India Ltd, processes and distributes compressed natural gas (CNG) and liquefied petroleum gas
* IGL’s standalone revenue (net of excise duty) grew 17.1% YoY to ?4,583 crore in Q1FY27, driven by higher sales volumes and improved realizations despite a tight gas-sourcing environment.
* Sales grew 6% YoY to 879 million standard cubic meter (SCM) from 831 million SCM in Q1FY26. The average daily sales were 9.66 million SCM, up from 9.13 million SCM.
* PNG sales volume rose 4% YoY to 222 million SCM on account of higher domestic and industrial sales volume.
* EBITDA declined 42.3% YoY to Rs.295 crore as gas sourcing costs surged, with cost of sales rising 30.0% YoY to Rs.3,808 crore amid elevated LNG prices and supply tightness. Consequently, EBITDA margin contracted 670bps YoY to 6.4% in Q1FY27, while PAT fell 47.7% YoY to Rs.186 crore due to weaker profitability.
Outlook & Valuation
The outlook is constructive on IGL’s medium-term prospects, supported by resilient volume growth, continued expansion in newer geographical areas and the recent CNG price hike, which should support realizations and partially offset elevated gas sourcing costs. While LNG-linked procurement costs are likely to keep margins under pressure in the near term, we expect a gradual recovery in spreads and profitability as sourcing conditions stabilize and pricing actions flow through. We have revised our earnings estimates lower to reflect the weaker margin outlook; however, we believe Q1FY27 likely marks the trough of the current earnings cycle. Based on our revised SOTP valuation, we arrive at a target price of ?168 and upgrade the stock to ACCUMULATE rating. Key downside risks include sustained LNG price inflation, slower-than-expected margin recovery and adverse regulatory interventions affecting pricing flexibility
Key concall highlights
* Around 48% of gas requirements were met through domestic gas allocations, while 52% came from imported sources, exposing profitability to volatility in LNG prices.
* IGL added more than 1 lakh PNG customers and 530+ industrial/commercial customers during the quarter and expanded its steel and MDPE pipeline networks.
* IGL continues to see strong demand for CNG, with vehicle additions/conversions rising to ~27,300 per month from ~18,000 a year ago.
* The management believes the recently announced Delhi EV policy will have a limited impact of below 3% on volumes by 2030.
* The company has initiated LNG hedging and is evaluating additional risk mitigation measures for volatile gas markets.
* The management plans an annual capex of Rs. 1,800-2,000cr, focusing on expanding PNG infrastructure, and exploring opportunities for business diversification.
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SEBI Registration Number: INH200000345
