GAIL's Valuations Attractive; Tariff Hike Key Catalyst Says Motilal Oswal Maintaining 'Buy'

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Motilal Oswal Report

We reiterate Buy on GAIL India Ltd. with our SoTP-based target price of Rs 205. Over FY26-28, we estimate a 9% CAGR in PAT, driven by:

• an increase in natural gas transmission volumes to 132mmscmd in FY28 from 123mmscmd in FY26;

• substantial improvement in the petchem segment’s performance over FY27-28, as the new petchem capacity will be operational and spreads are bottoming out;

• healthy profitability in the trading segment, with guided Ebit of at least Rs 40 billion in FY26/FY27.

We expect RoE to stabilize at ~12% in FY27/28, with a healthy FCF generation of Rs 138.5 billion over FY26-28, which we believe can support its valuations.

GAIL’s valuations have corrected sharply from their Sep’24 highs, and the stock now trades close to its historical averages at ~1.1x one-year forward core P/B, offering limited downside driven by attractive dividend yield and robust FCF outlook.

Further, the anticipated transmission tariff revision effective from Jan’26 is expected to raise the FY27 PAT by around 11% (revised target price: Rs 228/share), serving as a key near-term catalyst.

Transmission volumes are also set to rebound in FY27 as the impact of multiple one-off disruptions in FY26 wanes, with a recovery in power and fertilizer offtake and normalization of flood-impacted supplies. Government initiatives to further rationalize natural gas taxation can be a significant long-term positive.

Reiterate Buy with a target price of Rs 205.

Key risks:

APM de-allocation in the LPG segment

• GAIL’s LPG production segment has been witnessing APM gas de-allocation in recent quarters, and further de-allocation remains a risk for profitability.

• About 25% of the domestic gas originally allocated to this division has been withdrawn, resulting in a corresponding decline in the average production run-rate of LPG and liquid hydrocarbons. Any additional de-allocation could further weigh on segment performance and profitability.

• In FY25, the LPG and LHC segment Ebit accounted for 6.5% of GAIL Ebit. Producing LPG using costlier RLNG is economically unviable, thus limiting flexibility.

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