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CNG volume traction improves in 1Q (ex-DTC/DIMTS)

* Indraprastha Gas (IGL)’s 1QFY27 EBITDA/scm came in line with our est. at INR3.4/scm, as a ~INR4.4/scm QoQ increase in realization was more than offset by a ~INR6.5/scm QoQ rise in gas costs, while opex declined ~INR0.6/scm QoQ. Resulting EBITDA was in line with our estimate at INR3b (-42% YoY). Total volumes were in line with our estimate at 9.7mmscmd, up 6% YoY. IGL's PAT came in 5% below our est. at INR1.9b (-48% YoY), with the tax rate above our estimate.

* Key things we liked about the result:

1) CNG volume growth ex-DTC/DIMTS buses remained strong, with Delhi up 9% YoY; with DTC volumes now near zero and DIMTS volumes having stabilized, headline CNG growth numbers should strengthen going forward.

2) Areas outside Delhi continued to grow rapidly, up 27% YoY.

3) Vehicle additions remained robust at 27.3k CNG vehicles/month in 1QFY27 vs 18k/month in 1QFY26.

* Key investor concerns:

1) The recently approved Delhi EV policy primarily targets 3Ws and is expected by management to have a limited ~3% volume impact by FY30; however, concerns persist around potential future policy changes and a possible extension to passenger vehicles over the next 2-3 years.

2) Near-term margins are likely to stay under pressure amid ongoing geopolitical uncertainties.

* Valuation

We value IGL at 13x Dec’27E SA P/E and add INR41/sh as the value of JVs to arrive at our TP of INR193/sh. At a 2.6% FY27E dividend yield and 14% EPS CAGR over FY26-28, we believe the valuation is attractive. Reiterate BUY.

* Valuation and view

* IGL currently trades at 12.6x one-year forward P/E, below its mean – 1 S.D. P/E. We estimate EBITDA margin of INR5.5/INR6.2 per scm in FY27/28 and volumes to clock 7% CAGR over FY26-28. Resultant EBITDA and PAT are estimated to clock a CAGR of 14% each over FY26-28.

* We value IGL at 13x Dec’27E SA P/E and add INR41/sh as the value of JVs to arrive at our TP of INR193/sh. At a 2.6% FY27E dividend yield and 14% EPS growth over FY26-28, we believe the valuation is attractive. Reiterate BUY.

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