Buy GAIL (India) Ltd for the Target Rs 206 by Prabhudas Liladhar Ltd
Transmission vol guid. raised on increased gas consumption
GAIL reported higher than expected EBITDA of INR64.1bn (PLe: INR46.7bn; BBGe: INR45.2bn), driven by steady profitability in the Transmission business, resilient Trading performance and a turnaround in Petchem profitability. Consequently, PAT beat estimates at INR46.5bn (PLe: INR30.4bn; BBGe: INR30.2bn). Transmission volume increased by 6.3%/5.3% QoQ/YoY to 130.1mmsmd led by increased gas consumption across power, fertilizer and petrochemical sectors. Transmission volumes are guided at 126-127mmscmd (previous: 123mmscmd) in FY27, increasing to 134-135mmscmd in FY28, supported by recovery in gas consumption. On the back of strong H1FY27, management raised its FY27 Marketing/Trading PBT to INR90-95bn, although elevated trading gains witnessed in H1FY27 are unlikely to sustain in H2FY27. GAIL expects FY28 Marketing PBT to normalize to INR40-45bn. Company expects Petchem to remain breakeven in FY27. Maintain BUY, valuing the company at 11.0x Sep’28E EPS and adding INR38/share for investments (25% holding company discount), arriving at a revised TP of INR206 (earlier: INR204).
Transmission volumes increased QoQ/YoY:
Transmission volume improved to 130.1mmscmd, up by 6.3%/5.3% QoQ/YoY, reflecting a recovery in gas consumption led by power, petrochemical and fertilizer segments. Natural gas transmission EBIT increased 8.1% QoQ to INR19.3bn. Management raised the guidance of transmission volume of 126-127mmscmd in FY27 post strong 1HFY27. It further expects transmission volume to increase to 134-135mmscmd in FY28, driven by CGD growth and recovery in refinery demand.
Trading profitability moderates QoQ but remains resilient:
Gas Trading volume increased 3.6% QoQ but fell -7.8% YoY to 97.2mmscmd. Trading EBIT continued the momentum of temporary basis gains from Q1FY27, although it moderated QoQ of 5.7% to INR32.8bn, but improved from INR13.0bn YoY. As per Management, there was some moderation in JCC-linked gas sourcing prices in this quarter. Management does not expect such benefits in 2HFY27. GAIL sourced 18 spot LNG cargoes in Q2FY27 vs. 8 in Q1FY27, Management expects FY27 marketing PBT of INR90-95bn, while FY28 PBT is expected to normalize to INR40-45bn.
Petchem volume jumped, EBIT loss narrowed:
Volume from Petchem business recovered to 188.0tmt, up from 51TmT QoQ. EBITDA stood at INR0.9bn vs loss of INR-0.1bn QoQ. Petchem EBIT losses also narrowed down to INR0.2bn vs losses of INR1.2/INR3.0bn in Q1FY27/Q2FY26. Gas sourcing mix comprised of 50% HH and 50% spot, along with JCC-linked supplies, enabling the segment to maintain EBITDA breakeven. Management indicated that at current realisations and gas costs of ~USD14/MMBtu, the segment is operating around breakeven. Management expects the segment to remain around breakeven in FY27
LPG and LHC production increased on Gandhar restart:
LPG and Liquid Hydrocarbon production increased 9.9% QoQ and 14.9% YoY to 255TMT, supported by the restart of the Gandhar plant. EBIT declined 42.8% QoQ to INR4.4bn from INR7.7bn in Q1FY27
Q2FY27 EBITDA beat estimates, supported by strong Trading profitability:
Standalone EBITDA surpassed estimates at INR64.1bn (PLe INR46.7bn, BBGe INR45.2bn), remaining largely flat QoQ at INR63.8bn but increasing 101% YoY from INR31.9bn supported by strong Trading profitability and a turnaround in Petchem EBITDA. PAT also came in better than est at INR46.5bn (PLe INR30.4bn, BBGe INR30.2bn), vs Rs42.9bn in Q1FY27 and Rs22.2bn in Q2FY26
GAIL Gas Ltd listing approved; listing expected by FY27-28
Management received PNFRB approval for transfer of GAIL’s 6 GAs to GAIL Gas Ltd. These 6 CGDs have 219 CNG stations and around 3 lakh billed DPNG connections. GAIL approved listing of GAIL Gas Ltd, with a proposed dilution of 25% equity through the listing, which is expected next year in FY27-28. In the next 2 years, GAIL Gas aims to add around 275 new CNG stations and about 3.7 lakh new D-PNG connections. GAIL Gas reported total gas sales volume of 2.4mmscmd, comprising CNG (1.67mmscmd), industrial (0.58mmscmd), commercial (0.05mmscmd) and domestic PNG (0.09mmscmd)
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SEBI Registration number is INH000000933
