Indraprastha Gas’ Q2 volumes are robust. But that did not fuel its shares

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26 Aug, 2025 12:21

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The sales volume of city gas distribution company Indraprastha Gas Ltd (IGL)  for the three months ended September (Q2FY22) were ahead of some analysts’ estimates.

With the easing of the coronavirus-led restrictions, total sales volume in Q2 increased a healthy 32 percent year-on-year. This was primarily driven by faster growth of 35 percent in compressed natural gas (CNG) volumes. Piped natural gas (PNG) volumes rose 22 percent. Overall, IGL’s revenues have risen 40 percent year-on-year to Rs 1,831 crore.

What is more, with the opening up of schools and pandemic concerns ebbing, volumes are expected to improve further. But IGL’s investors were not impressed. After the results were announced, the stock was trading marginally lower on the National Stock Exchange in Wednesday’s trade when the broader markets were subdued as well.

It is likely that IGL’s investors are worried about upcoming margin headwinds owing to anticipated higher domestic gas prices from April 2022 driven by an increase in international gas prices. Analysts from Jefferies India said domestic APM (administered price mechanism) gas cost could rise further to around $6.7 per mmBtu (million British thermal units) in the next reset in April. As such, the impending APM gas price hike remains an overhang for the IGL stock. So far this calendar year, IGL’s shares have underperformed the Nifty 200 index.

Some analysts believe IGL would be able to pass on the higher costs. As Jefferies analysts wrote in a report on November 9, “Even though CNG economics would remain attractive (> 40-50 percent discount to petrol and diesel) after passing through the hike, the other key issue is that the quantum of further hike required (about Rs 14/kg) would be too steep. But we think IGL will be able to take the price hike in steps in order to mitigate the impact.”

To be sure, IGL performed reasonably on the EBITDA margin front in Q2. “EBITDA stood at a strong Rs 7.96 per scm (standard cubic metres), QoQ (quarter-on-quarter) higher and above our estimates; primarily on lower per unit operating expenses even as gross margin stood tad weaker QoQ at Rs 13.6 per scm (1Q: Rs 14.4 per scm), due to higher LNG (liquefied natural gas) prices,” said analysts from YES Securities in a report. EBITDA is earnings before interest, tax, depreciation and amortization, an important profitability metric for companies. IGL’s absolute Q2 EBITDA rose 30 percent year-on-year to Rs 530 crore. EBITDA is up 39 percent versus Q1.

Needless to say, margins remain a key monitorable. A sharp potential increase in the penetration of electric vehicles poses a risk to CNG demand, but that would be from a long-term perspective.

At 1.58 pm, the IGL stock was trading 0.5 percent down at Rs 491.75 on the NSE.