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Margins Contract, Volume Growth Remains Robust

Est. Vs. Actual for Q2FY26: Revenue – MISS; EBITDA – MISS; PAT – MISS

Change in Estimates post Q2FY26:

FY26E/FY27E: Revenue: -1%/0%; EBITDA: -8%/0%, PAT: -9%/0%

Recommendation Rationale

* EBITDA Contracts due to Higher Fuel Costs: The company’s EBITDA/scm was down 25%/35% YoY/QoQ to Rs 8/scm mainly led by higher gas cost. The increase in gas cost was led by – (i) Change in gas mix – higher volumes led to a higher weighted average cost due to reliance on spot RLNG and HPHT. APM and NWG allocation declined QoQ in Q2FY26 (APM from 1.7 mmscmd to 1.68 mmscmd and NWG from 0.5 mmscmd to 0.35 mmscmd; (ii) Depreciation of Rupee vis-à-vis US Dollars by 2 Rs QoQ in Q2FY26; (iii) Increase in unified base price, the effective APM price post co-mingling with CBG Gas was up to $7/mmbtu despite the upper cap of $6.75/mmbtu.

* Sourcing Mix: During Q2FY26, the company sourced 1.68 mmscmd through APM, 0.35 mmscmd from NWG, 1.45 mmscmd through Henry Hub Linked Contracts, 0.6 mmscmd through HPHT contracts, and the balance through spot contracts, including HPHT and RLNG. The company’s all-term contracts are currently getting fully consumed. However, in Jan’26, a longterm HPHT contract is likely to come up, which can reduce the company’s dependence on spot.

* Volumes: During Q2FY26, the company achieved sales volume of 4.59 mmscmd, up 9%/3% YoY/QoQ. It consists of 3.25 mmscmd of CNG volumes (up 7%/2% YoY/QoQ), 0.58 mmscmd (up 8%/2% YoY/QoQ) of Domestic PNG volumes, and 0.76 mmscmd (up 19%/8% YoY/QoQ) of Industrial and Commercial PNG volumes. FY26 volume growth is guided at 10% YoY.

* Infrastructure: During Q2FY26, 53,566 domestic households were connected, and the company has now established connectivity for nearly 2.94 million households. It has laid 87.4 kms of steel pipeline, taking the total length to over 8,061 Kms. The company has added 14 CNG stations during Q2FY26 and has a total of 485 stations as on 30 Sep’25. The company targets to add 80 stations in FY26 as compared to 66 stations in FY25

Sector Outlook: Positive

Company Outlook & Guidance: The company expects Q3FY26 EBITDA/SCM to be close to Rs 8.5/scm. It has now guided for FY26 EBITDA/scm to be in the range of 8.5-9/scm against earlier guidance of 9.5/scm. However, the company expects a 10% YoY growth in volumes in FY26. We cut our FY26 EBITDA to 9/scm, considering the management guidance and the higher expected cost of fuel. We keep our FY27/28 estimates unchanged as we project a robust 9.4% CAGR in volume over FY25-28E, driven by network expansion in GA-3 (Raigad) and strong growth at UEPL.

Current Valuation: DCF basis (Unchanged)

Current TP: Rs 1,540/share (Unchanged)

Recommendation: We maintain our BUY recommendation on the stock.

Financial Performance:

Consolidated Net Sales (net of excise duty) stood at Rs 2,050 Cr, up 15% YoY, down 2% QoQ, 1% miss on the consensus estimates. EBITDA stood down 18%/33% YoY/QoQ, a 14% miss on consensus estimates, mainly due to higher fuel costs. EBITDA/scm stood at Rs 8/scm, down 25%/35%, YoY/QoQ. EBITDA margins stood at 16.5%, down 667bps/756bps YoY/QoQ. PAT was down 33%/40% YoY/QoQ to Rs 191 Cr, a 29% miss on the consensus estimates.

Outlook:

The company has guided that its core MGL capex will continue to remain high at Rs 1,100- 1,300 Cr per annum at least for the next couple of years as it builds up its pipeline network and CNG infrastructure in newer GAs, i.e., Raigad, Ratnagiri, Latur, and Osmanabad in Maharashtra, and Chitradurga and Davanagere in Karnataka. The higher capex in the upcoming years will drive higher volumes and will catalyse further growth for the company.

Valuation & Recommendation:

We value the company using the DCF method, considering a WACC of 11.5%. We forecast cash flows for 15 years and post that use a terminal growth rate of 3.0% to arrive at the terminal value. We add net cash and investments at a 30% discount to arrive at our target price of Rs 1,540 per share reflects an upside of 21% from the CMP. We recommend BUY on the stock as the valuation is undemanding at the CMP.

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SEBI Registration number is INZ000161633