Muted retail price cuts imply sharp gross margin expansion, but opex is a key factor We try to revisit our assumption of IGL’s EBITDA margin, which would have a significant bearing on its future earnings. After muted 2%/3% retail price cut in CNG/domestic PNG in Delhi against a 20% reduction in APM gas rate in April 2016, we estimate its gross margin has expanded by a significant Rs 1.3/1.0 per scm qoq in Q1FY17. Against this, IGL commissioned 90+ new OMC?located outlets in this period (~30% increase), which would raise expenses, as unit throughput would be lower and additional margins have to be paid to OMCs. The extent of opex/scm increase is a key determinant of how much the EBITDA/scm would grow. Continuous minimum wage hike is also a recurring feature in Delhi. IGL’s opex rose to Rs 4.5/scm in Q4FY16 from Rs 3.3/scm in FY14; therefore, despite an increase in gross margin (to Rs 9.6/scm from Rs 8.9/scm), EBITDA/scm fell to Rs 5.2 from Rs 5.6.Phillip Capital Maintain Neutral with Rs 650 target price, await Q1 result to assess margin assumptions They keep earnings estimates and target price unchanged though there is a 10% upside to the same if EBITDA/scm expands to Rs 5.8.They would await Q1FY17 results to take a stock on the opex and thereafter change our estimates. Sector outlook is positive though valuations seem to price in existing triggers. Maintain Neutral.