BOB Capital Markets has maintained its BUY recommendation on Indraprastha Gas while revising the target price downward to Rs 184 from Rs 197, citing pressure on operational profitability amid elevated gas sourcing costs. Despite the moderation in EBITDA margins, the brokerage continues to remain constructive on the company’s medium-term outlook due to sustained growth in CNG and PNG volumes, expansion outside the Delhi region, and strategic international ambitions. The research note highlights that while revenue performance exceeded expectations in Q4FY26, profitability remained under pressure because of rising imported gas costs and a lower allocation of cheaper domestic APM gas.

Higher Gas Costs Overshadow Revenue Growth in Q4FY26

Indraprastha Gas delivered a resilient top-line performance in the March quarter, but operational stress weighed heavily on margins.

The company reported Q4FY26 revenue of Rs 41.6 billion, reflecting a 5.5% year-on-year increase and marginally surpassing analyst expectations. The growth was largely driven by healthy expansion in compressed natural gas (CNG) and piped natural gas (PNG) volumes. However, rising gas procurement expenses significantly impacted earnings before interest, taxes, depreciation, and amortization (EBITDA).

EBITDA for the quarter declined 14.4% YoY to Rs 4.2 billion, while EBITDA margin contracted sharply to 10.16% from 12.52% a year earlier. Profit after tax also fell 20.7% YoY to Rs 2.77 billion.

The company’s EBITDA spread dropped to Rs 4.8 per scm compared with Rs 6/scm in the corresponding quarter last year, underscoring the pressure from higher LNG-linked sourcing costs and adverse currency movement.

Volume Momentum Continues Despite EV Transition Challenges

IGL’s underlying demand environment remains healthy even as electric vehicle penetration gradually alters transport fuel dynamics in Delhi.

Total gas volumes rose 5.6% YoY to 872.5 million standard cubic meters in Q4FY26. CNG volumes expanded 5.5% YoY to 637 mnscm, while PNG domestic volumes advanced 7.4% YoY to 191 mnscm.

Management indicated that Delhi’s CNG demand has moderated because a large portion of DTC buses are transitioning toward electric mobility. However, growth outside Delhi continues to remain robust, particularly in Noida, Ghaziabad, Gurugram, and adjoining geographical areas.

Interestingly, nearly 60% of the company’s volume contribution is now emerging from regions beyond Delhi, signaling a gradual diversification of the consumption base. Gurugram alone is witnessing close to 47% penetration of CNG in newly registered vehicles.

The brokerage expects volume growth to remain structurally healthy, supported by infrastructure expansion and increased adoption across NCR clusters.

Management Guides for Strong FY27 Expansion

Despite current operational pressures, management remains optimistic about long-term growth visibility.

IGL has guided for approximately 9% overall volume growth in FY27. Delhi region volumes are expected to rise 10–13%, while newer geographical areas may witness even stronger growth of 17–18%.

The company added 60 new CNG stations during FY26 and plans to continue aggressive infrastructure expansion. Management has earmarked capex of Rs 15 billion for FY27, mainly toward PNG pipeline expansion and additional CNG infrastructure.

BOBCAPS believes this capex cycle could support sustained market share gains and strengthen IGL’s positioning within India’s city gas distribution ecosystem.

Saudi Arabia Expansion Adds Strategic Optionality

One of the more notable long-term triggers highlighted in the report is IGL’s proposed expansion into Saudi Arabia.

The company is exploring opportunities in Saudi industrial regions where authorities are promoting a transition from propane and LPG toward natural gas for industrial applications. Management highlighted that five industrial cities have already been awarded under the initiative, with each zone carrying estimated demand potential of 1–1.5 MMSCMD.

While the overseas initiative remains at an early stage, analysts believe it could become a meaningful medium-term growth lever if execution remains disciplined.

Brokerage Cuts Estimates but Retains Optimism

BOBCAPS revised earnings estimates downward due to weaker-than-expected operational performance and elevated gas costs.

The brokerage now projects FY27 revenue at Rs 184.3 billion, alongside EBITDA of Rs 21.8 billion and adjusted EPS of Rs 10.9.

For FY28, EPS is estimated at Rs 11.9, while EBITDA margins are expected to gradually improve as pricing stabilizes and operational efficiencies strengthen.

Below is the revised estimate matrix from the brokerage:

The brokerage has revised its USD/INR assumption upward to Rs 95, reflecting expectations of continued currency pressure on imported gas costs.

Target Price Revised to Rs 184 Amid Margin Concerns

Although the brokerage remains bullish on the structural growth story, near-term profitability concerns prompted a valuation reset.

BOBCAPS has valued the stock at 13.5x March 2028 estimated EPS, arriving at a standalone valuation of Rs 161 per share. Adding Rs 23 per share for the company’s stake in CUGL and MNGL results in a revised target price of Rs 184.

At the current market price of approximately Rs 157, the brokerage sees upside potential of nearly 17%.

Key Risks Investors Should Monitor

The report identifies two major downside risks that could impact future earnings trajectory.

First, any further reduction in APM gas allocation could force IGL to procure more imported LNG at higher market-linked prices, thereby compressing margins further.

Second, accelerated adoption of electric vehicles across NCR — especially among buses, three-wheelers, and app-based taxi fleets — may structurally weaken long-term CNG demand growth.

Nevertheless, analysts believe IGL’s expanding geographic footprint, infrastructure investments, and strong balance sheet position the company favorably for medium-term growth despite ongoing sectoral transitions.