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On Wednesday, Citi analysts increased the price target on Indraprastha Gas (NSE:IGAS) Ltd. (IGL:IN) shares to INR500 from INR450, while continuing to recommend a Buy rating for the stock. The adjustment follows positive remarks made by the company’s management during the third quarter fiscal year 2025 earnings call.
The management of Indraprastha Gas highlighted several key developments that have contributed to a more favorable outlook. Firstly, the government’s partial restoration of Administered Price Mechanism (APM) gas allocation in January, along with additional allocation from Oil and Natural Gas Corporation’s (ONGC) new well starting February, and the contracting of more Liquefied Natural Gas (OTC:LNGLF) (LNG) have improved the company’s gas supply mix. Approximately 50% of IGL’s gas supply now comes from APM or new well gas, around 40% from contracted LNG, which is predominantly linked to the US Henry Hub price, and about 5% from domestic high-pressure/high-temperature (HP/HT) gas.
Furthermore, the management anticipates that EBITDA margins will return to the range of approximately INR7 to INR8 per standard cubic meter (scm) over the fiscal years 2026 to 2027. This expectation is set against the backdrop of a third-quarter reported margin of INR4.3 per scm, which they consider to be the lowest point. It was also noted that the Compressed Natural Gas (CNG) price increase in Delhi is still pending, expected to be implemented after the upcoming state elections.
In terms of volume, from the reported base of 9.1 million standard cubic meters per day (mmscmd) in the third quarter, management projects that volumes will increase to 9.5 mmscmd by the end of fiscal year 2025 and further to 10.5 mmscmd by the end of fiscal year 2026. These projections indicate a confident outlook for the company’s growth in terms of both supply and demand.
The positive adjustments to Indraprastha Gas’s supply mix and the expected recovery in EBITDA margins reflect the company’s strategic initiatives and favorable government policies that have bolstered the analyst’s confidence in the stock’s performance.
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