Adani Total Gas: Why investor preference for the stock is intriguing

Adani Total Gas Ltd (ATGL) stock rose nearly 13% to ₹ 660.7 on Friday. The rise was accompanied by trading volume of 39 million shares, the highest since 27 May, 2026, indicating strong buying interest. Shares cooled off a bit on Monday, falling by 3%.

While the reason for the sudden jump in volume and price is unclear, ATGL's market capitalization (mcap) of about ₹ 70,000 crore remains significantly higher than comparable city gas distribution (CGD) peers such as Indraprastha Gas Ltd (IGL) and Mahanagar Gas Ltd (MGL), which have market values of almost ₹ 20,800 crore and ₹ 10,600 crore, respectively. This compares with ATGL's consolidated net profit of ₹ 656 crore in FY26, well below IGL's ₹ 1,390 crore and MGL's ₹ 850 crore. The same trend is evident in the June quarter (Q1FY27) financials.

The stock trades at a price-to-earnings multiple of over 100 based on FY26 earnings, and the gauge is likely to be above 100 based on FY27 estimated earnings arrived at by annualizing Q1FY27 net profit. The question then is why the stock enjoys such a high valuation? Do future earnings prospects merit the Street’s optimism ?

True, there is the advantage of having strong parentage as Adani group and TotalEnergies have equal stakes of 37.4% each. The presence of France's TotalEnergies, the world’s second-largest private player in the liquefied natural gas (LNG) market, should help in strategic sourcing of imported natural gas. As of Q1FY27, 38% of the required natural gas is imported, while the rest is sourced domestically.

While TotalEnergies could ensure gas availability, there is currently no pricing advantage when the blended cost of gas is taken into account. For instance, ATGL's blended cost of gas per standard cubic meter (scm) in Q1FY27 was ₹ 48 versus ₹ 43 for IGL and ₹ 40 for MGL. In fact, the higher cost meant ATGL's gross margin per scm was the lowest in at least the last nine quarters at ₹ 14.6.

ATGL's key advantage over its CGD peers is its wider, relatively underpenetrated geographical footprint. It is present in 53 geographies (19 through joint ventures with Indian Oil Corp.) in 125 districts. In comparison, IGL serves across 12 geographical areas covering 32 districts. MGL has the smallest geographical footprint, serving 8 areas - Mumbai & Greater Mumbai, adjoining areas of Mumbai and Raigad district besides the other five areas it acquired through acquisitions in Maharashtra and Karnataka. Also, unlike IGL and MGL, which are dominant in metro cities and adjoining areas that are relatively more saturated, ATGL operates across wider, less-penetrated geographical areas.

But its wider geographical presence is yet to translate into higher revenues. ATGL’s revenues are less than half of the biggest player IGL's FY26 and Q1FY27 revenues. Despite this, investors may have been shunning IGL lately due to Delhi-NCR's clean transportation policy. For now, the policy aims to pivot from CNG to electric-based commercial transport, but there is a possibility of passenger vehicles being brought under similar restrictions in future.

This could hurt IGL’s revenues, and in the meanwhile ATGL's growth may well catch up. But will that justify the steep valuation that ATGL enjoys? Perhaps investors should weigh if they are better off dividing their bets on relatively cheaper options in the sector like IGL and MGL.