Prabhudas Lilladher has upgraded Indraprastha Gas to a 'Buy' rating with a target price of ₹178, representing a significant upgrade from its previous stance. The brokerage's latest research report dated August 15, 2026 shows confidence in the company's prospects despite recent challenges. Q1FY27 EBITDA was broadly inline with estimates at ₹3.0 billion, though down 30.1% quarter-on-quarter due to higher gas input costs. EBITDA per scm came in at ₹3.4/scm, in line with estimates, while PAT of ₹1.9 billion was below estimates at ₹2.3 billion. The brokerage maintains its long-term EBITDA/scm guidance of ₹7.0/scm and values the standalone business at 11x FY28E Adjusted EPS, with additional investments valued at ₹28 per share.
According to latest reports, Indraprastha Gas delivered mixed financial results for Q1FY27, with consolidated net profit falling 29.5% to ₹240 crore from ₹341 crore in Q4FY26, while revenue rose 10% sequentially to ₹4,586 crore from ₹4,162 crore. As per the latest data, the company's EBITDA declined 30.4% sequentially to ₹293.4 crore from ₹421.4 crore in Q4FY26, while EBITDA margin compressed significantly to 6.4% from 10% in the previous quarter. The standalone net profit of ₹240 crore in Q1 FY27 was down 32.9% from ₹277.08 crore in Q4 FY26, indicating sequential deterioration despite revenue growth. According to Nomura, the company's Q1FY27 EBITDA of ₹3.0 billion was 9% below Nomura's estimate and 19% below Bloomberg consensus, with EBITDA declining 30% quarter-on-quarter, largely due to higher raw material costs which were 7% above the brokerage's estimate.
Despite profitability challenges, Indraprastha Gas demonstrated growth across key volume metrics, indicating steady demand in the market. Total gas volumes remained largely flat QoQ at 9.7 mmscmd, with CNG volumes growing 9% year-on-year and 27% year-on-year outside Delhi, while total ex-DTC CNG volumes grew 11%. CNG growth remains healthy, with vehicle conversions/new additions rising to ~27,300/month over the last 6 months compared to ~18,000 earlier. However, DTC volumes were zero in Q1FY27 vs ~1.5 lakh kg/day in Q1FY26, impacting overall volumes. LNG volumes surged 82% to 0.31 million Scm from 0.17 million Scm in the previous year. The EBITDA margin contracted by almost 380 basis points sequentially to 6.4% from 10.2%, with the divergence particularly notable as net revenue still grew by more than 10% during the same period. Overall Q1FY27 volumes stood at 9.7 million standard cubic metres per day (mmscmd), up 6% year-on-year and flat quarter-on-quarter, in line with Nomura's estimate. Nomura noted that IGL's CNG volume growth has 'lagged its peers over the past 13 quarters in a row', a trend that could continue as Delhi's EV policy has banned new CNG three-wheeler registrations starting January 2027.
The company's operational metrics showed significant pressure during the quarter, with EBITDA contracting 30.4% sequentially to ₹293.4 crore from ₹421.4 crore in Q4FY26. The EBITDA margin compressed significantly to 6.4% from 10% in the previous quarter, indicating operational efficiency challenges despite revenue growth. According to the latest data, total expenses increased 13.5% QoQ to ₹4,883.37 crore from ₹4,300.83 crore, with purchases of stock-in-trade of natural gas rising to ₹3,810.86 crore from ₹3,212.09 crore, an increase of around 18.6%. The EBITDA margin compression of 360 basis points suggests increased cost pressures or lower operational efficiency during the period, which directly impacted the final net profit figure. The biggest pressure came from natural gas procurement, representing an increase of almost ₹599 crore sequentially and around ₹883 crore year-on-year, with the rise in gas costs significantly outpacing the increase in net revenue. High and volatile liquefied natural gas (LNG) prices arising out of the ongoing West Asia crisis impacted margins during the quarter, with Nomura noting that higher gas costs could be due to unfavourable sourcing mix. The unit EBITDA margin came in at ₹3.4/scm, 9% below Nomura's estimate, and declined 31% quarter-on-quarter and 45% year-on-year.
The June quarter performance comes after a series of CNG price increases earlier in the year, with Indraprastha Gas raising CNG prices by ₹1 per kg across all geographical areas effective from 6 am on May 23. Following this revision, CNG in Delhi was priced at ₹81.09 per kg, marking the third CNG price increase in May and taking the total hike during the month to ₹4 per kg. The company had stated that these increases were aimed at partially offsetting higher input gas costs and the sharp appreciation in the US dollar. Shares of IGL fell after the earnings announcement on August 13, with the stock trading 1.78% lower at ₹151.79 on the NSE. The financial results were approved by the Board of Directors on August 13, 2026, with statutory auditors PSMG & Associates expressing an unmodified review conclusion. Standalone adjusted net income stood at ₹1.9 billion, with EPS at ₹1.33, declining 33% quarter-on-quarter and was 12% below Nomura's estimate. Higher-than-expected net realisation, up 9% quarter-on-quarter and 5% ahead of Nomura's estimate, was more than offset by the increase in raw material costs. IGL's ability to raise CNG prices is limited versus MGL, given that petrol prices in Delhi are around 8% lower because of lower state taxes.
Despite the challenging quarterly results, Nomura has significantly downgraded its outlook on Indraprastha Gas, downgrading IGL to 'Neutral' and cutting its target price to ₹155 from its earlier target, saying it is now the 'least preferred pick among CGDs given volume and margin pressures'. The brokerage noted that IGL has 'also under-performed peers in margins in seven consecutive quarters', with 2Q margins could remain soft for all city gas distribution companies due to falling APM gas allocation, higher prices of imported gas and the rupee's depreciation. Nomura cut its FY27F/28F EBITDA estimates by 30%/6%, moderating its margin assumptions due to 'twin headwinds from higher gas costs as well as INR's depreciation', while also trimming volume estimates to account for the drag from the three-wheeler ban. Cash flows could also remain stretched in FY27F due to high capex, with management guided for ₹15 billion of core capex and ₹5 billion of non-core capex, which could result in negative free cash flow. The stock trades at 12.8x FY28F EPS versus its historical one-year-forward average of around 18.6x. A key downside risk is lower-than-anticipated volumes, while a key upside risk is higher than-anticipated volumes, the brokerage said, with Nomura preferring Gujarat Energy and MGL among the CGD stocks it covers. Meanwhile, CLSA maintained its 'Outperform' rating but cut its target price to ₹195 from ₹210, noting that IGL's unit margin fell to a record low, while EBITDA declined to a five-year low.
