Indraprastha Gas Ltd’s (IGL) March quarter (Q4FY26) earnings underscored a familiar contradiction for city gas distributors (CGDs)—robust demand growth alongside rising concerns over profitability owing to cost pressures.
Volumes rose 6% year-on-year to 9.7 million standard cubic metres per day (mmscmd) in Q4, aided by 5% growth in CNG and 9% and 13% increases in industrial/commercial and domestic PNG volumes, respectively. Revenue grew 5.4% to ₹4,163 crore.
The company has guided for FY27 exit volumes of 10.6 mmscmd.
Growth tailwinds
Tailwinds remain supportive. CNG vehicle adoption has picked up since the GST on CNG conversion kits was cut from 28% to 18%. PNG network expansion under the government’s PNG Drive 2.0, and the gradual fading of the headwind from Delhi Transport Corporation buses' shift to EVs should also help.
PNG is expected to be the primary growth driver. IGL has 3.44 million connected PNG households, of which only 2.45 million are billed, leaving significant monetization potential without incremental infrastructure spending.
The company also crossed 1,000 CNG stations in FY26, with volume growth driven by regions outside Delhi.
Margin squeeze
The challenge lies in margins. IGL’s Ebitda per standard cubic metre (scm) fell to ₹4.8 in Q4FY26, sharply below the ₹6-plus levels seen a year ago.
Gas procurement costs surged nearly 25% amid the West Asia war and supply disruptions at QatarEnergy, compounded by rupee depreciation. These factors offset benefits from earlier tax relief measures.
IGL has already raised prices of CNG and industrial PNG, which together accounted for nearly 90% of Q4 volumes despite government-guided cuts to industrial PNG sales. However, room for further hikes appears limited. Antique Stock Broking estimates CNG’s price advantage over petrol and diesel has narrowed to 18.8% and 12.5%, respectively. Aggressive price increases risk dampening demand.
With low-cost APM (administered price mechanism) gas likely to be phased out by FY29, achieving the guided ₹7-8/scm Ebitda margin could prove more difficult than the management anticipates. APM refers to subsidized natural gas supplied by the government to CGDs.
The stock is trading at 11x the FY27 consensus earnings estimates, per Bloomberg data. But the consensus masks the widely diverging analyst opinions on the achievable Ebitda margin. Brokerages are sharply divided on the stock, with target prices ranging from ₹148 to ₹220 per share.