Motilal Oswal Financial Services has reiterated a BUY rating on Indraprastha Gas Ltd. (IGL) with a target price of Rs 220, implying an upside potential of nearly 40% from the current market price of Rs 157. The brokerage believes the city gas distributor remains strategically positioned to benefit from rising CNG adoption, expansion in domestic PNG connections, and improving long-term profitability despite near-term pressure from elevated gas procurement costs. While EBITDA margins are expected to remain soft in the first quarter of FY27 due to geopolitical disruptions in gas supply, management’s guidance of stronger volume growth and stable medium-term earnings trajectory has reinforced investor confidence. Analysts also highlighted improving operational scale, attractive valuations, and healthy dividend visibility as major positives for long-term investors.

IGL Posts Better-Than-Expected Fourth Quarter Earnings

Indraprastha Gas delivered a strong operational surprise during the March quarter, outperforming Street expectations on both profitability and volumes. EBITDA per scm stood at Rs 4.8, significantly higher than analyst estimates of Rs 3.4 per scm. Quarterly EBITDA came in at Rs 4.2 billion, exceeding expectations by more than 50%, although it still declined 15% on a year-on-year basis due to rising input costs.

Profit after tax for the quarter stood at Rs 2.8 billion, nearly 44% ahead of estimates. However, PAT declined 21% compared with the same period last year, reflecting persistent pressure from elevated gas sourcing expenses.

Total gas volumes rose to 9.7mmscmd during 4QFY26, recording annual growth of approximately 5.6%. CNG volumes increased 5.5% YoY, while domestic PNG and industrial-commercial PNG volumes also remained relatively resilient despite broader market challenges.

Rising Gas Costs Continue To Pressure Margins

The largest challenge facing IGL remains the sharp escalation in global gas procurement costs. According to management commentary, gas sourcing expenses have risen nearly 25% from pre-geopolitical crisis levels after supply disruptions from international suppliers, including Qatar Energy.

Current spot LNG procurement costs remain elevated at nearly USD 17-17.5 per mmbtu, while pooled gas prices continue to hover around USD 14-15 per mmbtu. Management acknowledged that EBITDA margins during the first quarter of FY27 are likely to remain under pressure before gradually improving over subsequent quarters.

To partially offset higher input costs, the company implemented a Rs 3 per kilogram increase in CNG prices. Analysts believe the pricing action should provide some support to profitability while preserving demand momentum across core markets.

CNG Demand Momentum Remains Strong Across Key Markets

Despite near-term margin concerns, volume growth continues to emerge as the biggest strength in IGL’s business model. The company achieved peak volumes of nearly 10.2mmscmd during February 2026 and now expects to exit FY27 at approximately 10.6mmscmd.

Management is guiding for 10-13% growth in CNG sales volumes during FY27, supported by sustained vehicle conversion trends and increasing consumer preference for cleaner fuel alternatives.

Nearly 23,000-26,000 CNG vehicles were added every month during FY26, highlighting the growing structural adoption of gas-based mobility solutions in northern India.

Regional growth patterns, however, remain uneven. Delhi volumes expanded just 1% YoY, indicating market maturity, while Noida and Ghaziabad delivered stronger growth of 6-8%. Other geographical areas recorded robust expansion of nearly 16-17%, reflecting significant opportunities beyond the core Delhi region.

Domestic PNG Expansion Offers Long-Term Growth Visibility

IGL’s domestic PNG business continues to provide a major long-term growth opportunity. The company currently has 3.44 million connected domestic PNG customers, of which nearly 2.45 million are active billed users.

Under the government-backed PNG Drive 2.0 initiative, IGL plans to add nearly 0.35 million new billed domestic customers during FY27, substantially higher than its earlier target range of 0.23-0.25 million.

An additional 0.5 million already-connected but inactive households represent a low-cost conversion opportunity, since the underlying pipeline infrastructure has already been installed. Analysts believe this could significantly improve profitability over time without requiring substantial incremental capital expenditure.

The company also continues to aggressively strengthen its infrastructure footprint. As of FY26-end, IGL operated 1,024 CNG stations while expanding its steel pipeline network by 250 kilometers and MDPE pipeline infrastructure by 2,470 kilometers.

Industrial And Commercial Volumes Remain Soft

The industrial and commercial PNG segment continues to face temporary headwinds. Management revealed that gas supply allocation to industrial and commercial customers was reduced by nearly 20%, affecting volume growth during the quarter.

Industrial-commercial demand is expected to remain weak during the first quarter of FY27 as supply conditions remain tight. To protect margins, the company implemented price increases of 35-40% for industrial and commercial consumers over the past several months.

As of March 2026, IGL catered to nearly 5,500 industrial customers and approximately 7,500 commercial consumers across its operating network.

Financial Outlook Suggests Strong Recovery Potential

Motilal Oswal expects the current profitability pressure to moderate significantly over the medium term. The brokerage forecasts EBITDA margins of Rs 4.3 per scm in FY27 before improving sharply to Rs 6.5 per scm in FY28.

Overall gas volumes are expected to grow at nearly 8% CAGR between FY26 and FY28, while EBITDA and PAT are projected to expand at approximately 18% CAGR over the same period.

Analysts also highlighted IGL’s healthy balance sheet, strong cash generation profile, and negative net debt-equity ratio as key positives supporting long-term valuation comfort.

Valuation And Investment Strategy

Motilal Oswal values IGL at 15x December 2027 estimated standalone earnings and additionally assigns Rs 43 per share toward joint venture value, resulting in a target price of Rs 220.

The brokerage believes the stock remains attractively valued considering its dominant city gas distribution franchise, expanding infrastructure network, rising clean-energy adoption trends, and improving long-term earnings trajectory.