Top takeaways from Q1FY17: Sharp recovery in volume growth to 13% yoy at 4.33mmscmd. CNG grew by a robust 10% yoy while PNG was up a whopping 17%. Volumes were up 6% qoq. Gross margin expanded by 11% (Rs 1/scm) qoq to Rs 10.6/scm on muted 2?3% retail CNG/DPNG price cuts, despite a 20% reduction in domestic gas rates.Opex fell by 1% qoq to Rs 1.6bn due to a decline in other expenditure, which was a positive surprise; we had expected it to rise due to commissioning of new outlets. As a result, EBITDA/scm rose by 25% (Rs 1.3) qoq to Rs 6.5, significantly beating estimates.CUGL/MNGL reported a robust gross PAT of Rs 340mn, up 42% yoy and 21% qoq.

Valuation: They upgrade the stock to Buy with a revised target price of Rs 840 (Rs 650 earlier). This implies a target PE of 16x, which believe is justified due to a sharp recovery in volume/margins and lower WACC in their DCF.