Urbanization And CNG Adoption Will Expand Future Markets

Published
02 Feb 25
Updated
08 Aug 25
AnalystConsensusTarget's Fair Value
₹234.80
13.7% undervalued intrinsic discount
08 Aug
₹202.63
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1Y
-25.4%
7D
-1.7%

Author's Valuation

₹234.8

13.7% undervalued intrinsic discount

AnalystConsensusTarget Fair Value

Last Update01 May 25
Fair value Decreased 0.77%

Key Takeaways

  • Expansion into new regions and rising demand for CNG and PNG are driving sustained growth and strengthening the company's long-term revenue outlook.
  • Cost-saving measures and supportive government policies are set to boost profitability and provide positive momentum for margins and earnings.
  • Rapid EV adoption and regional concentration threaten long-term CNG demand, while rising costs and global gas price exposure could further pressure margins and earnings stability.

Catalysts

About Indraprastha Gas
    Engages in the distribution and sale of natural gas in India.
What are the underlying business or industry changes driving this perspective?
  • The company is seeing robust double-digit volume growth in its operations outside Delhi, supported by rapid urbanization, network expansion into new geographies, and rising CNG vehicle adoption-trends that are likely to drive sustained top-line/revenue growth over the next several years.
  • There is a strong pipeline of new customer additions across residential, industrial, and commercial PNG segments, with continued growth in connections and healthy consumption per user, indicating an expanding addressable market and solid long-term volume growth potential that supports recurring revenue.
  • Upcoming rationalization of transmission tariffs and ongoing reductions in state taxation (notably in Rajasthan and potentially Uttar Pradesh) are expected to directly lower operating costs and enhance EBITDA margins, resulting in medium-term margin expansion and improved profitability.
  • Operational efficiency initiatives, including optimization of power/fuel costs, aggressive rollout of new CNG stations, and digitization efforts, are expected to further reduce per-unit costs and support net margin improvements in the coming quarters.
  • The company stands to benefit from government support for natural gas as a clean fuel, with policy and regulatory developments positioning CNG and PNG as essential drivers in India's decarbonization push, underpinning both steady demand growth and regulatory tailwinds that will positively impact long-term revenue and earnings visibility.

Indraprastha Gas Earnings and Revenue Growth

Indraprastha Gas Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?
  • Analysts are assuming Indraprastha Gas's revenue will grow by 8.3% annually over the next 3 years.
  • Analysts assume that profit margins will shrink from 10.9% today to 9.7% in 3 years time.
  • Analysts expect earnings to reach ₹18.8 billion (and earnings per share of ₹13.42) by about August 2028, up from ₹16.7 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₹21.9 billion in earnings, and the most bearish expecting ₹15.3 billion.
  • In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.0x on those 2028 earnings, up from 17.3x today. This future PE is greater than the current PE for the IN Gas Utilities industry at 16.3x.
  • Analysts expect the number of shares outstanding to decline by 0.06% per year for the next 3 years.
  • To value all of this in today's terms, we will use a discount rate of 12.73%, as per the Simply Wall St company report.

Indraprastha Gas Future Earnings Per Share Growth

Indraprastha Gas Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?
  • Ongoing transition of public transport (e.g., DTC and DIMTS buses) from CNG to electric vehicles in Delhi is reducing bulk CNG volumes, and management expects a near-complete phase-out in 2 years, which may structurally lower CNG sales growth, thereby impacting revenue and earnings.
  • Increasing operating expenses, particularly related to power, fuel, and compressor operation for new CNG stations-combined with slower capacity utilization in newly developed areas-could put sustained pressure on net margins until full utilization is achieved.
  • The company's core growth remains significantly concentrated in the Delhi NCR and adjoining regions, which exposes IGL to geographic and policy risks (e.g., state tax changes or local regulatory shifts) and increases vulnerability to any adverse events, potentially leading to volatile and less predictable earnings.
  • The gas sourcing mix is increasingly dependent on a combination of domestic allocations and long-term imported gas contracts (Henry Hub/Brent-linked), making IGL more exposed to fluctuations in global gas prices and changes in government allocation policy, which could lead to higher input costs and further margin compression.
  • The long-term secular threat from rapid EV adoption in urban mobility is evident in Delhi and could spread to neighboring regions; as EV transition accelerates (with supportive policies), the addressable CNG vehicle market may stagnate or shrink, constraining long-term volume growth and ultimately putting pressure on revenue trajectories.

Valuation

How have all the factors above been brought together to estimate a fair value?
  • The analysts have a consensus price target of ₹234.8 for Indraprastha Gas based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹648.0, and the most bearish reporting a price target of just ₹155.0.
  • In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹194.6 billion, earnings will come to ₹18.8 billion, and it would be trading on a PE ratio of 25.0x, assuming you use a discount rate of 12.7%.
  • Given the current share price of ₹205.46, the analyst price target of ₹234.8 is 12.5% higher.
  • We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

How well do narratives help inform your perspective?

Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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