This sector set be the next profit machine in 2026: Motilal Oswal sees a big upside ahead

India’s city gas distribution (CGD) sector may be on the verge of a multi-year boom, with Motilal Oswal flagging it as a potential “profit machine” from 2026 onwards. In its latest report, the brokerage says years of heavy investment in pipelines, a sharp rise in CNG adoption and a wider push towards cleaner fuels are finally coming together to create strong earnings visibility for CGD companies. While near-term challenges remain, analysts believe the groundwork has been laid for a powerful growth phase that could reward long-term investors.

Over the past five to seven years, India has been busy laying the foundation for a national gas grid. What began as a network limited to a few big cities has now expanded rapidly across the country. The number of authorised geographical areas for city gas has jumped from around 40 earlier to 307 today, bringing piped gas and CNG closer to homes, businesses and vehicles in both large and smaller cities.

According to Motilal Oswal, more than Rs 1 lakh crore has already been committed by public and private players to build this ecosystem. Such scale of investment, the brokerage says, usually does not show results immediately - but once demand catches up, it can translate into sustained growth for years.

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CNG vehicles drive demand on Indian roads

One of the biggest triggers for CGD growth is the surge in CNG vehicles. A quick look at Indian roads shows how fast this shift is happening. Over the past six years, the number of CNG stations has risen nearly four times, making the fuel far more accessible.

In FY25, sales of CNG passenger vehicles grew 35 per cent year-on-year. Maruti Suzuki’s CNG mix increased from 15 per cent to 18 per cent of its total sales, while Tata Motors saw its CNG share jump from 16 per cent to 25 per cent.

Motilal Oswal notes a key shift in the way new gas areas are being developed. Earlier, CGD firms had to operate in smaller, scattered regions, where building infrastructure was expensive and customer density was low. The newer geographical areas, however, are much larger and more densely populated.

This change improves project economics. Beyond vehicles, more households, factories and small businesses are also connecting to piped natural gas, adding multiple revenue streams for distributors.

Government push adds long-term comfort

The sector is also riding on strong policy support. The government’s vision of ‘One Nation, One Gas Grid’ aims to ensure wider access to natural gas across India, reducing dependence on costlier and dirtier fuels.

With natural gas positioned as a transition fuel in India’s clean energy journey, analysts believe CGD companies are likely to remain key beneficiaries of policy continuity and infrastructure expansion over the next decade.

Against this backdrop, Motilal Oswal has highlighted select CGD players that could gain the most from the upcoming cycle.

Mahanagar Gas (MGL):

The brokerage likes MGL for its steady volume growth and relatively attractive valuations. Analysts believe that even a modest improvement in pricing could translate into meaningful upside for the stock, given its strong presence in the Mumbai region.

Indraprastha Gas (IGL):

IGL is another preferred pick, especially after recent changes in taxes and zonal tariffs, which are expected to support margin recovery. With its dominant footprint in the Delhi-NCR region, the company is seen as well placed to benefit from rising urban gas demand.

Motilal Oswal cautions that short-term headwinds - such as gas price volatility, competition from alternative fuels and execution challenges in new areas - cannot be ignored. However, the brokerage believes these are manageable in the context of the larger structural opportunity opening up for CGD companies.

The report underlines that the sector has spent years building capacity. As utilisation improves from 2026 onwards, earnings growth could accelerate, making CGD a space to watch for patient investors.

Analysts see the next year or two as the phase when most of the heavy lifting on infrastructure starts paying off. With pipelines in place, stations operational and demand rising across segments, the CGD sector may finally move from investment mode to profit mode.

For investors looking beyond short-term noise, Motilal Oswal believes this could be the start of a rewarding cycle in India’s oil and gas space - led not by refineries, but by the city gas networks quietly spreading across the country.

Disclaimer: The views, suggestions and recommendations expressed in this article are solely those of investment experts. Zee Business advises readers to consult their financial advisers before taking any investment decision.