Indraprastha Gas' (IGL) CNG volume growth and margins are facing increasing pressure, with Nomura flagging the impact of Delhi's EV policy and higher gas costs. In its latest note on Sunday, the brokerage downgraded IGL to 'Neutral' and cut its target price to Rs 155 from its earlier target, saying it is now the "least preferred pick among CGDs given volume and margin pressures".

IGL's 1QFY27 EBITDA of Rs 3.0 billion was 9?low Nomura's estimate and 19?low Bloomberg consensus. EBITDA declined 30% q-q, "largely due to higher raw material costs", which were 7% ahead of the brokerage's estimates.

Gas cost rose 18% q-q due to an adverse sourcing mix, with APM share of volume falling sharply from 37% to 27%, along with higher-cost imported LNG. Unit EBITDA margin at Rs 3.4/scm was 9?low estimates, down 31% q-q and 45% y-y

Overall 1QFY27 volumes at 9.7mmscmd grew 6% y-y and were flat q-q, in line with Nomura's estimate. CNG volumes stood at 7.2mmscmd, up 6% y-y and 2% q-q.

Delhi EV policy likely to weigh on CNG volumes

Nomura said IGL's CNG volume growth has "lagged its peers over the past 13 quarters in a row", a trend that could continue as Delhi's EV policy has banned new CNG three-wheelers' registrations starting January 2027.

"100k CNG 3Ws in Delhi will likely phase out gradually; volume drag of 1% is likely in the near term and ~3% by 2030F," the brokerage said.

At the same time, attractive tax benefits, scrappage benefits, charger infrastructure rollouts and continued new model launches remain long-term tailwinds for CNG car growth.

Nomura also said IGL's ability to raise CNG prices is limited versus MGL, given petrol prices in Delhi are around 8% lower because of lower state taxes.

Margins remain another concern

IGL has "also under-performed peers in margins in seven consecutive quarters", Nomura said, adding that 2Q margins could remain soft for all city gas distribution companies due to falling APM gas allocation, higher prices of imported gas and the rupee's depreciation.

Cash flows could also remain stretched in FY27F due to high capex. Management has guided for Rs 15 billion of core capex and Rs 5 billion of non-core capex, which could result in negative free cash flow, the brokerage said.

Nomura cut its FY27F/28F EBITDA estimates by 30%/6%, moderating its margin assumptions due to "twin headwinds from higher gas costs as well as INR's depreciation", while also trimming volume estimates to account for the drag from the three-wheeler ban.

Nomura cuts target price to Rs 155

Nomura downgraded IGL to 'Neutral' with a lower DCF-based target price of Rs 155, with WACC at 12% and terminal growth rate at 2%, both unchanged.

The stock trades at 12.8x FY28F EPS versus its historical one-year-forward average of around 18.6x.

"A key downside risk is lower-than-anticipated volumes, while a key upside risk is higher than-anticipated volumes," Nomura said. The brokerage prefers Gujarat Energy and MGL among the CGD stocks it covers.