IGL stock jumps over 2% after CNG price hike; Citi sees 22% upside, but margin pressure may persist

According to fresh market updates, Indraprastha Gas (IGL) shares advanced more than 2 percent in morning trade on August 31 after the city gas distributor boosted CNG prices in Delhi over the weekend. Market watchers expect the move to help arrest the sharp margin erosion noted in recent quarters. IGL stock was trading 2.36 percent elevated at Rs 151.10 in the morning.

The firm boosted CNG prices in Delhi by Rs 3.89 per kg, or nearly 5 percent, with effect from August 29, taking the retail price to Rs 86.98 per kg from Rs 83.09 earlier. IGL stated the gain was aimed at partly offsetting the sharp climb in imported spot LNG costs.

Citi maintained its 'buy' rating on IGL with a target price of Rs 180, implying around 22 percent upside from the previous close. The brokerage described the nearly 5 percent CNG price hike as a "well-calibrated" move that is unlikely to meaningfully affect volume expansion.

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According to Citi, the gain should lift IGL's blended realisations by around Rs 1.8 per standard cubic metre (scm), all else being equal, and help arrest the steady erosion in margins. IGL's EBITDA margin had fallen to a multi-year low of Rs 3.4 per scm in the first quarter of FY27.

The brokerage additionally stated that IGL had lagged peers in passing elevated costs on to consumers. Following cuts in the allocation of cheaper APM gas since October 2024, IGL, Mahanagar Gas and Gujarat Gas have now implemented cumulative CNG price increases of around 15-16 percent, according to Citi.

That stated, the latest gain may not be enough to fully restore IGL's margins. Probal Sen of ICICI Securities told CNBC-TV18 that the price hike was crucial after the firm suffered massive margin compression in the June quarter. He anticipates the gain to improve margins by only around Rs 1.2-1.3 per scm, meaning some margin pressure is likely to persist despite the elevated CNG price. Sen additionally stated further price hikes from IGL could follow.

Gas costs could stay elevated in the near term. Citi flagged elevated spot LNG prices and continued disruption to India's contracted LNG supplies from Qatar as risks for city gas distributors.

IGL has stated CNG consumers had largely been insulated from the surge in global gas prices until the latest revision. Europe’s TTF gas prices have risen nearly 105 percent and Asian JKM LNG prices around 113 percent since late February, as stated by the firm. IGL stated it would keep optimise gas sourcing costs to maintain CNG's competitiveness against alternative fuels.