GAIL India Q3 Results Review - Coal-To-SNG Project Building Block Towards Coal-To-Chemicals: Motilal Oswal

Motilal Oswal Report

The Cabinet Committee on Economic Affairs recently approved equity investment by Coal India Ltd. in Coal-to-Synthetic Natural Gas Project at ECL command area through a joint venture of Coal India and GAIL India Ltd. For GAIL India, we see this as another step towards broadening the earnings base and as a building block towards eventually developing coal to chemical capabilities.

Arguably, even without the forward integration into chemicals there is a business case for coal to syngas projects given India imports bulk of its methanol / urea requirements. GAIL India will have 30% stake in the project.

While this remains a memorandum of understanding for now, with cabinet approval coming in, there is increased likelihood of board approval being received for the project.

We remain positive on GAIL valuing the core business at 12 times December- 25E adjusted earning per share of Rs 14.1. Adding the value of listed and unlisted investments of Rs 31, we arrive at our revised target price of Rs 200.

Our TP implies FY26E price-to-book of 1.6 times. The stock is currently trading at an FY26E P/B of 1.4 times.

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