Buy Indraprastha Gas Ltd For Target Rs. 181 by Prabhudas Liladhar Capital Ltd
Elevated gas costs weigh on profitability
Total Q4FY26 volumes increased 2.8% QoQ and 5.6% YoY, driving revenue growth of 2.3% QoQ and 5.5% YoY to INR41.6bn. Elevated input gas costs and higher other expenses weighed on profitability, with Adj. EBITDA/scm declining to INR4.8/scm in Q4FY26 from INR5.9/scm in Q3FY26. Consequently, reported EBITDA stood at INR4.2bn, declining 10.5% QoQ and 14.4% YoY. Higher interest costs and lower other income further impacted earnings, with PAT declining 22.7% QoQ and 20.7% YoY to INR2.8bn. Management expects to achieve an exit volume of ~10mmscmd in FY27E. We build in a volume CAGR of 5.1% over FY25-FY28E (vs. earlier 6.1%), with estimated volumes of 9.9mmscmd and 10.4mmscmd for FY27E and FY28E, respectively. We maintain “Buy” rating, supported by an improving volume growth trajectory. The recent INR3/kg CNG price hike in May’26 provides some relief against elevated input costs. However, if West Asia disruptions continue, additional price hikes may be required to offset margin pressures. We value the standalone business at 11x FY28E Adj. EPS and assign INR28/share for investments (at a 25% holding company discount), resulting in a revised target price of INR181/share (earlier INR174/share).
EBITDA/scm impacted by higher costs in Q4FY26:
Gross realizations improved slightly 1.7% QoQ and 2.9% YoY to INR47.7/scm. Gas cost/scm rose 3.4%/2.8 YoY/QoQ to INR36.8/scm due to higher gas costs. Consequently, gross margin/scm declined 1.6% QoQ to INR10.9/scm, but improved 1.1% YoY. Opex/scm increased 7.5% QoQ and 25.8% YoY, primarily due to higher other expense, partly offset by decline in employee costs. As a result, EBITDA/scm declined to INR4.8/scm vs INR5.4/scm in Q3FY26 and INR6.0/scm in Q4FY25. Adjusted EBITDA/scm stood at INR4.8/scm vs INR5.8/scm in Q3FY26 vs INR4.6/scm in Q4FY25.
Volume growth remains stable in Q4FY26 :
CNG sales volume stood at 7.1mmscmd, up 2.1%/5.4% QoQ/YOY. Total PNG volumes increased 4.8%/5.9% QoQ/YoY to 2.6mmscmd. Accordingly, total sales volume stood at 9.7mmscmd compared to 9.4mmscmd in Q3FY26 and 9.2mmscmd in Q4FY25.
FY26 EBITDA/PAT muted:
Total volumes grew 4.5% YoY to 9.4mmscmd in FY26, led by CNG and PNG volume growth of 4.1% and 5.4% YoY, respectively. As a result, revenue grew 8.4% YoY to INR161.7bn. However, higher gas costs weighed on profitability, resulting in a 5.8% decline in EBITDA to INR18.5bn. Consequently, EBITDA/scm for FY26 declined to INR5.4/scm vs INR6.0/scm in FY25
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