Motilal Oswal Reiterates Buy Rating on Indraprastha Gas, Targets Rs 220
Motilal Oswal Reiterates BUY on Indraprastha Gas
Indraprastha Gas (IGL) has reported its 4QFY26 earnings, exceeding market expectations. IGL's EBITDA per standard cubic meter (scm) came in at INR4.8, a 44% increase from the research firm's estimate. This was largely driven by gas costs and operating expenses, which rose approximately INR1/0.8 per scm on a quarter-over-quarter basis.
Total volumes for 4QFY26 were slightly below the estimated 9.69mmscmd, with a 6% year-over-year (YoY) growth. Consequently, IGL's earnings before interest, taxes, depreciation, and amortization (EBITDA) beat the estimate by 51% at INR4.2 billion, representing a YoY decline of 15%. The company's profit after tax (PAT) also surpassed the estimated INR2.8 billion, reflecting a 44% beat and a YoY decline of 21%.
Key highlights from the result include:
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- Total 4Q volumes were slightly above the estimated 9.7mmscmd, with a 5.6% YoY increase. Compressed natural gas (CNG) volumes grew 5.5% YoY.
- Management has guided a robust exit volume of 10.6mmscmd for FY27, driven by 10-13% YoY growth in CNG volumes and EBITDA margins of INR7-8/scm.
- The National PNG drive 2.0 is expected to support natural gas adoption, with IGL targeting 0.35m new billed domestic connections in FY27 (up from 0.23-0.25m earlier). This is supported by a strong pipeline of approximately 0.5m already-connected but non-consuming customers.
Valuation and Outlook
We value IGL at 15 times the estimated December 2027 earnings per share (Dec'27E SA P/E) and add INR43/sh as the value of joint ventures to arrive at our target price of INR220/sh. With a 2% FY27E dividend yield and 18% EPS compound annual growth rate (CAGR) over FY26-28, we believe the valuation is attractive. As a result, we reiterate our BUY recommendation on IGL.
| Metric | Estimated | Actual | Difference |
|---|---|---|---|
| EBITDA/scm | INR4.8 | INR4.8 | 0% |
| Total Volumes (mmscmd) | 9.69 | 9.7 | 0.1% |
| YoY Growth | 6% | 5.6% | -0.4% |
| CNG Volumes YoY Growth | - | 5.5% | - |
| FY27 Exit Volume (mmscmd) | - | 10.6 | - |
| EBITDA Margins/scm (FY27E) | - | INR7-8 | - |
| New Billed Domestic Connections (FY27E) | 0.23-0.25m | 0.35m | 44% |
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Note: The table above highlights the key differences between the estimated and actual values for various metrics.
Investor Takeaway
Investors should consider buying Indraprastha Gas due to its robust growth prospects and increasing EBITDA margins.
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