Buy Indraprastha Gas; target of Rs 250: Motilal Oswal

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26 Aug, 2025 12:21

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In 2QFY26, Indraprastha Gas (IGL)’s EBITDA/scm margin came in 9% below our estimate at INR5.2, primarily driven by higher gas costs due to the rising share of R-LNG in gas sourcing. Total volumes were slightly below at 9.3mmscmd (our est.: 9.7mmscmd). The resulting EBITDA/PAT was 13%/7% below our estimate at INR4.4b/INR3.7b. Our earnings assumptions are conservative: We model an EBITDA/scm of INR6.0/ INR6.5/INR6.5 in FY26/FY27/FY28 vs. medium-term guidance of INR7-8. Further, we estimate 7% CAGR volume growth over FY25-28 vs. 10% YoY growth guided by management. Upside risks: 1) strong growth in new GAs (rising at 20%+ YoY), 2) majority of the GAs now reaching EBITDA positive levels, 3) margin expansion led by a change in taxation in the ONGC-GAIL contract and zonal tariff regulation, and 4) IGL's foray into natural gas distribution in Saudi Arabia, having a volume potential of 4.5 5mmscmd.

We value IGL at 16x Dec’27E SA P/E and add INR49/sh as the value of JVs to arrive at our TP of INR250/sh. At 2.4% FY27E dividend yield and 9% EPS growth, we believe the valuation is attractive. Reiterate BUY.

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