ICICI Securities has maintained its 'BUY' rating on Indraprastha Gas but lowered the target price to ₹240. While the company saw revenue growth in the first quarter of FY27, profits took a hit due to high gas costs. Investors are now weighing these short-term margin challenges against the company’s long-term growth targets.
ICICI Securities has maintained its 'BUY' rating on Indraprastha Gas (IGL) but revised the target price downward to ₹240 from the previous ₹250. This adjustment follows a challenging first quarter for the 2027 financial year, where the company’s profit margins were squeezed by rising gas input costs.
The company’s recent quarterly performance reveals a mixed picture. While revenue grew by approximately 16% to 17% year-on-year, reaching ₹5,043 crore, the bottom line suffered. Profit after tax (PAT) saw a sharp decline of about 44% compared to the same period last year, coming in at ₹238 crore. This disconnect between revenue growth and profitability highlights the pressure the company is facing.
The main culprit behind the lower profits is margin compression. Global gas prices have remained high, largely due to supply chain disruptions caused by geopolitical tensions in the Gulf region. Indraprastha Gas has struggled to pass these higher costs fully to its consumers, meaning the profit earned on every unit of gas sold has dropped. Despite these cost pressures, the company continues to see steady growth in its Compressed Natural Gas (CNG) volumes, which helped drive the overall revenue increase.
Looking ahead, the brokerage remains optimistic about the company’s long-term potential. ICICI Securities projects an average annual earnings growth of 15.7% for the company between FY26 and FY28. This expectation is built on the belief that CNG adoption will keep rising and that future regulatory changes could offer more stability or benefits to city gas distribution companies.
Investors, however, should be aware of several risks. The company’s business model is sensitive to the price of imported LNG, which can be highly volatile during international conflicts. There is also a long-term challenge from the shift toward electric vehicles (EVs) in Delhi, which could impact the growth of CNG demand over time. Additionally, the company faces ongoing monitoring regarding potential license fee demands.
As the company moves forward, the market will likely track how input gas costs trend and whether the company can successfully improve its profit margins. Monitoring management's commentary on volume growth and their ability to navigate supply chain risks will be important for those tracking the stock, which was recently trading at approximately ₹151.70.