Buy Gail India; target of Rs 218: Prabhudas Lilladher

Prabhudas Lilladher's research report on Gail India

Transmission volume grew 2.1% QoQ to 123.6mmscmd in Q2FY26 vs 121.0mmscmd in Q1FY26, while it fell by 5.4% YoY (130.6mmscmd in Q2FY26) due to above normal monsoon impacting power demand, and shifting of industries to alternate fuels. GAIL expects tariff revision of its integrated pipeline to Rs70/mmBtu soon. GAIL Gas reported revenue of Rs 32.4bn in Q2FY26 (up from Rs 29.3bn in Q1FY26), with PBT up 1% QoQ to Rs 1.5bn and PAT up 3% QoQ to Rs 1.1bn. Gas sales stood at 7.7mmscmd in Q2FY26. Co. added 44,512 new DPNG connections and 1 CNG station, (including JVs/subsidiaries) to 1.2mn DPNG connections and 665 CNG stations. GAIL is studying a potential listing of GAIL Gas.

Outlook

GAIL’s transmission volume stood in line at 124mmscmd (-5.4% YoY, +2.1% QoQ). Trading volume stood at 105.5mmscmd (+9.2% YoY, flat QoQ). Higher-than-expected EBIT in LPG transmission and gas trading was balanced by lower-than-expected EBIT in petrochem, LPG/liq HCs and unallocated. As a result, EBITDA of Rs 31.9bn was in-line with our estimate (Ple Rs 32.8bn, BBGe Rs 30.4bn, -14.8% YoY, -4.3% QoQ). PAT also came in-line at Rs 22.2bn (Ple Rs 21.7bn, BBGe Rs 20.9bn, -17% YoY, +17.5% QoQ). The stock currently trades at 10.9x Sept’27E EPS. Expected increase in tariffs and transmission volume of 8-10mmscmd in FY27 remains a catalyst. Moreover, value unlocking through potential listing of GAIL Gas Ltd offers upside. As a result, we upgrade our valuation multiple from 11x to 12x adj standalone eps of FY27/FY28E and add Rs 33 for investments at 25% holding company discount, leading to a target price of Rs 218 (previously Rs 199); we also upgrade the rating to “Buy” from Accumulate.

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