Buy GAIL Ltd for the Target Rs 200 by Emkay Global Financial Services Ltd
GAIL’s 2QFY27 SA EBITDA/APAT of Rs64.1/Rs46.5bn was a 25%/32% beat to our estimates, driven by robust performance across most segments. Gas marketing delivered another strong quarter, with 2Q/1H PBT at Rs31.5/65.0bn, driven by higher returns on the HH portfolio amid elevated crude prices and spot sales, and timing benefits under the JCC contract. While management expects these benefits to normalize in 2H, it raised FY27 PBT guidance to Rs90- 95bn, with FY28 guidance at normalized levels of Rs45-50bn. Gas transmission volumes recovered sequentially to 130mmscmd, with FY27/FY28 guidance at 126-127/134-135mmscmd. Petchem earnings were near breakeven in 2Q, with a similar performance expected for FY27. LPG-LHC earnings were weighed down by lower realizations and higher gas costs. We raise FY27E EBITDA by 30% on stronger gas marketing and petchem run-rate in 1H, while FY28/FY29E EBITDA increases by 3%/2% on better petchem and transmission earnings. We retain BUY with an unchanged TP of Rs200.
Results highlights
GAIL’s 2QFY27 SA EBITDA/APAT rose 2.0x/2.1x yoy (up 1%/8% qoq). D/A rose 4% qoq to Rs9.0bn, while other income of Rs6.4bn missed estimate by 20% (down 19% yoy). Gas transmission EBITDA rose 7% qoq on lower unit opex, while volume was up 6% qoq to 130.1mmscmd (4% miss). Gas marketing EBITDA was a 35% beat at Rs35.9bn (up 131% yoy/down 5% qoq), with RLNG margin up at $1.57/mmbtu (Emkay: $1.0/mmbtu). Marketing volume rose 4% qoq to 97.2mmscmd (3% miss). LPG transmission EBITDA rose 7% qoq to Rs1.5bn. Petchem EBITDA turned positive to Rs900mn vs loss of Rs110mn in 1Q on higher utilization (100% in 2Q vs 25% in 1Q) and lower unit opex. LPG-LHC EBITDA, however, declined 41% qoq to Rs4.7bn on lower realization and higher gas costs. GAIL’s opex at Rs29.1bn was 46% below estimate (up 3% yoy/8% qoq), with other expenses up 5% yoy/11% qoq to Rs4.1bn (50% below estimate).
Earnings call highlights
GAIL sourced 18 spot LNG cargoes in 2Q vs 8 in 1Q as Indian gas demand recovered. Highest transmission volumes of 147.8mmscmd were recorded on 21-Sep-26. FY28 petchem breakeven assumes gas costs of $9–10/mmbtu and realizations of Rs90–95/kg. PDH-PPU commissioning is targeted for Jun-27, while Dabhol’s heating system is slated for commissioning during Mar/Sep-27, raising effective capacity to 5mmtpa (80 cargoes pa). Six GAs, comprising 219 CNG stations and 0.3mn billed DPNG customers, are to be transferred to GAIL Gas from GAIL. GAIL Gas recorded 1H volumes of 6.79mmscmd and targets adding 275 CNG stations and 0.37mn DPNG customers over the next two years.
Valuation
We value GAIL via SOTP-EV/EBITDA method, with investments at a 30% holdco discount and unlisted investments at 1.0x BV. We slightly lower our blended Sep-28E EV/EBITDA to 6.5x from 6.7x owing to segmental realignment. Key risks: Adverse commodity and currency movements, regulations, outages, and project delays.
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