IGL Q3 FY26: Volumes up, margins recover; outlook 2026

Upgrade call: IGL moved to ‘Accumulate’

Indraprastha Gas Ltd (IGL) was upgraded to ‘Accumulate’ from ‘Hold’, with the view anchored on improving CNG volume growth and a recent stock price correction creating a better entry point. The upgrade note pointed to sequential and year-on-year improvement in volumes. It also highlighted easing input gas costs as a direct support to margins. Even so, the broader narrative in city gas distribution (CGD) remains shaped by competitive intensity and limited pricing flexibility. Management commentary in recent quarters has repeatedly emphasised that price hikes are not expected. In fact, VAT rationalisation was cited as a factor that could reduce retail prices.

Volume growth: steady but not yet strong

IGL’s total volumes rose 1.2% quarter-on-quarter (QoQ) and 3.5% year-on-year (YoY), according to the brokerage note. Another data point in the same set of updates placed total volumes at 9.42 mmscmd in Q3 FY26, up 3% YoY. For Q1 FY26, volumes were cited at 9.13 mmscmd, and for Q2 FY26, volumes were referenced around 9.2 to 9.3 mmscmd across updates. Management also reiterated a target of 10 mmscmd by Q4 FY26, with incremental additions of 1 mmscmd annually over FY27E to FY28E. The modelling assumption shared in the note builds a volume CAGR of 6.1% over FY25 to FY28E. Based on that, estimated volumes were stated at 9.9 mmscmd for FY27E and 10.7 mmscmd for FY28E.

Margins: gas cost relief drives EBITDA/scm recovery

Lower gas costs were the central driver behind the margin recovery described for Q3 FY26. EBITDA per standard cubic metre (EBITDA/scm) improved to Rs 5.4/scm versus Rs 5.2/scm QoQ and Rs 4.3/scm YoY in one update. Another note pegged Q3 FY26 EBITDA/scm (adjusted for a labour code impact of INR 293 million) at Rs 5.8, with gas costs down about Rs 0.9/scm QoQ. Management commentary around Q1 FY26 referenced EBITDA/scm around Rs 6.16 to Rs 6.2 and repeated a long-term guidance range of Rs 7 to Rs 8/scm. At the same time, the research build for FY27E and FY28E assumed EBITDA/scm of Rs 6.0 and Rs 6.2 respectively, explicitly below IGL’s long-term guidance. The rationale cited was support from zonal tariff changes and VAT benefits, but with a conservative stance on how quickly margins normalise.

Profitability swings across quarters: Q2 dip, Q3 rebound

Quarterly profitability trends were mixed across FY26. For Q2 FY26, IGL was reported to have a YoY dip of about 17.4% in EBITDA and about 13.6% in PAT, to INR 4.4 billion (Rs 440 crore) and INR 3.7 billion (Rs 370 crore) respectively, attributed to higher gas costs and a reduced share of APM and NWG allocations. In contrast, Q3 FY26 was reported with a YoY increase of 37.7% in EBITDA and 25.5% in PAT to INR 5.0 billion (Rs 500 crore) and INR 3.8 billion (Rs 380 crore). Revenue and EBITDA were also cited as having grown 8.2% YoY and 29.9% YoY respectively, supported by volume growth of 3.4% YoY and lower input gas costs. The pattern reinforces a key CGD reality: earnings sensitivity to gas sourcing mix and input prices remains high.

Record sales, but investor focus remains on margin compression

Separate quarterly disclosures cited IGL’s highest-ever quarterly net sales at Rs 4,067.50 crore in Q3 FY26. This was described as 1.10% higher than Q2 FY26 net sales of Rs 4,023.40 crore, and 8.21% higher than Q3 FY25 net sales of Rs 3,758.76 crore. However, the market reaction was described as tepid amid persistent concerns about margin compression and the operating environment for CGDs. Operating margin (excluding other income) was stated at 11.58% in Q3 FY26, up 62 basis points sequentially from 10.96% in Q2 FY26, but well below 16.39% recorded in Q1 FY25. PAT margin was stated at 9.64% in Q3 FY26, improving YoY by 98 basis points, but below 13.66% in Q1 FY25. The narrative across these figures is clear: revenue growth has not automatically translated into margin expansion.

Stock performance: underperformance versus Sensex

The stock’s one-year performance was described as a meaningful underperformance relative to the benchmark. IGL was said to have declined 14.55% over the past year, while the Sensex gained 8.83%. This implies a negative alpha of 23.38 percentage points over the same period. The upgrade to ‘Accumulate’ explicitly leans on this correction as part of the valuation case, alongside signs of stabilising unit economics. Still, the notes also point to multiple overhangs cited earlier, including the EV policy angle and limits to pricing actions.

DTC volumes and the FY26 to FY28 roadmap

Management indicated that DTC volumes are expected to fall to zero by Mar’26. The same update said “normalised” CNG volume growth is likely from Q3 FY27 onward. The guidance reiterated was 10 mmscmd in Q4 FY26 and incremental 1 mmscmd annual additions over FY27E to FY28E. A separate management comment referenced domestic segment additions of “three to three and a half lakh” connections per year, and a 10% to 12% growth expectation in domestic connections. Industrial and commercial growth was also described as 10% to 11%, particularly outside NCR, supported by conversion discussions with industries.

Key numbers snapshot

What to monitor: tariffs, VAT, and margin band

A recurring theme across the updates is the role of regulatory and tax changes in restoring margin headroom. Zonal tariff changes were referenced as supportive for the transport and domestic segment being in “zone one”. Gujarat VAT reduction was also cited as a potential margin and pricing support, although one note described an EBITDA/scm upside of 16% to 20% from a tax rate change in Gujarat as awaiting official confirmation. The near-term investment debate remains centred on whether unit margins can move closer to the long-term Rs 7 to Rs 8/scm guidance without price hikes. For now, the modelling stance presented builds a more conservative Rs 6.0 to Rs 6.2/scm in FY27E to FY28E.

Conclusion

IGL’s latest set of quarterly datapoints shows improving volumes and a margin rebound helped by lower gas costs, while longer-term targets still hinge on tariff and tax tailwinds. Management’s guidance of reaching 10 mmscmd by Q4 FY26 and the indicated DTC volume taper to zero by Mar’26 set clear milestones for the next few quarters. The stock’s underperformance versus the Sensex has supported a rating upgrade to ‘Accumulate’, but margin trajectory remains the primary monitorable amid CGD sector competition and limited pricing flexibility.