CNG stocks are in focus given the sharp surge in crude rates as well as the supply disruption as a result of the blockade around the Strait of Hormuz. Motilal Oswal reiterated its ‘Buy’ rating on Indraprastha Gas following the company’s March quarter earnings. The brokerage assigned a target price of Rs 220, implying a 40% upside from prevailing levels.
Motilal Oswal said the company delivered stronger-than-expected operating performance despite higher gas procurement costs during the quarter. Earnings before interest, taxes, depreciation and amortisation per standard cubic metre stood at Rs 4.8, which was 44% above the brokerage estimate, while profit after tax came in at Rs 280 crore, ahead of expectations. The brokerage said rising compressed natural gas volumes and continued expansion in piped natural gas adoption could support earnings growth over the next two financial years.
Motilal Oswal on Indraprastha Gas
Motilal Oswal Financial Services Ltd. said Indraprastha Gas reported better-than-expected operational performance in the January to March quarter even as elevated liquefied natural gas prices weighed on margins. The brokerage noted that total gas volumes rose to 9.7 million metric standard cubic metres per day in the fourth quarter of FY26 from 9.2 million metric standard cubic metres per day in the corresponding quarter last year, marking a 6% increase on a yearly basis. The number also came ahead of the brokerage estimate of 9.3 million metric standard cubic metres per day.
Volume growth ahead of estimates
According to Motilal Oswal, compressed natural gas volumes increased 5.5% year-on-year during the quarter, while domestic piped natural gas and industrial and commercial piped natural gas volumes came in 19% and 7% above its estimates, respectively. The brokerage said earnings before interest, taxes, depreciation and amortisation stood at Rs 420 crore in the March quarter of FY26, marking a 51% beat over its estimate despite a 15% decline compared with the same period last year. Profit after tax came in at Rs 270 crore, down 21% year-on-year, though still 44% ahead of brokerage expectations.
Motilal Oswal sees strong CNG demand ahead
Motilal Oswal said management commentary remained encouraging on future volume growth. The brokerage stated that the company expects compressed natural gas volumes to rise 10% to 13% in FY27 and aims to exit the year with volumes of 10.6 million metric standard cubic metres per day. It added that earnings before interest, taxes, depreciation and amortisation margins are expected to remain in the range of Rs 7 to Rs 8 per standard cubic metre.
PNG Drive 2.0 remains a key trigger
The brokerage also pointed to growth opportunities under the government’s PNG Drive 2.0 programme. Motilal Oswal said Indraprastha Gas currently has 34.4 lakh domestic piped natural gas customers, of which 24.5 lakh are billed customers. Under the programme, the company is targeting 3.5 lakh additional billed domestic connections in FY27. The brokerage added that nearly 5 lakh already-connected but inactive customers could also be converted into active users with limited infrastructure spending.
“Under PNG Drive 2.0, the company is targeting 0.35m new billed domestic connections in FY27, supported by a strong pipeline of already-connected but non-consuming customers that offer a low-cost, near-term conversion opportunity with minimal incremental infrastructure requirement,” Motilal Oswal said in its report.
Higher gas costs put pressure on margins
Motilal Oswal Financial Services Ltd. also discussed the pressure arising from higher gas sourcing costs during the quarter. The brokerage said gas procurement costs increased nearly 25% because of geopolitical pressure on liquefied natural gas prices. To offset part of the impact, the company raised compressed natural gas prices by Rs 3 per kilogram during the quarter.
Delhi growth remains sluggish
At the same time, the brokerage identified a few operational concerns. Motilal Oswal said supply to industrial and commercial customers was reduced by 20% in the fourth quarter to reduce exposure to imported liquefied natural gas volumes. It also noted that Delhi volumes remained sluggish, with only 1% year-on-year growth during the quarter.
Public transport conversion nears saturation
The brokerage further observed that compressed natural gas conversion among public transport fleets in Delhi has largely reached saturation levels. According to Motilal Oswal, only 25 Delhi Transport Corporation buses are left for conversion to compressed natural gas. The brokerage also said nearly 1,790 Delhi NCR buses linked to app-based transport services reduced compressed natural gas consumption by about 0.13 million metric standard cubic metres per day.
Valuation comfort keeps ‘Buy’ call intact
Even with those concerns, Motilal Oswal retained a positive valuation stance on the stock. The brokerage said the company currently trades at 18.3 times one-year forward price-to-earnings ratio, broadly in line with its historical average. It expects volume growth to clock an 8% compounded annual growth rate between FY26 and FY28. Earnings before interest, taxes, depreciation and amortisation as well as profit after tax are expected to register an 18% compounded annual growth rate over the same period.
Based on those assumptions, Motilal Oswal valued the stock at 15 times December 2027 estimated standalone earnings and added Rs 43 per share towards the valuation of joint ventures to arrive at a target price of Rs 220. The brokerage reiterated its ‘Buy’ rating on the stock after the March quarter earnings.
“The National PNG drive 2.0 is expected to support natural gas adoption,” Motilal Oswal said while reiterating its view on the company.
Conclusion
Motilal Oswal maintained that Indraprastha Gas remains positioned for earnings growth over the next two financial years despite pressure from elevated gas procurement costs and slower Delhi volume growth. The brokerage expects stronger compressed natural gas demand, expansion in domestic piped natural gas connections and conversion of inactive users under PNG Drive 2.0 to support the company’s performance going forward.
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