Buy Gas Authority of India Ltd For Target Rs. 210 By Emkay Global Financial Services Ltd
GAIL posted Q2FY26 standalone EBITDA of Rs31.9bn, a 6% miss, due to weak transmission, petchem, and LPG. PAT at Rs22.2bn saw a 5% beat, largely due to 41% higher-than-estimated other income. The reported transmission EBITDA saw an 18% miss, while gas cost affected petchem; realizations fell for LPG. Marketing was 18% better than expected. The management further lowered its FY26 pipeline volume guidance to 123-124mmscmd after a weak H1; however, it expects to see 8-10mmscmd growth in FY27. The management reiterated its FY26 marketing PBT guidance at Rs40-45bn, with potential upside. Petchem earnings were impacted by higher gas cost; the near-term outlook remains weak as HH prices are high. The integrated network tariff hike is expected at any time. We cut FY26E EPS by 10%, factoring in lower pipeline volumes and delayed tariff hike, while largely retaining our FY27-28E earnings. We roll forward to Sep-27E, with our blended target EV/EBITDA multiple down to 6.8x, from 7.0x, on changes in segment earnings. We retain BUY and maintain our TP of Rs210 despite the rollover to Sep-26E
.Results highlights
GAIL’s Q2FY26 standalone EBITDA/PAT fell 15%/17% YoY (down 4%/up 18% QoQ, respectively). D/A rose 5% QoQ to Rs9.3bn (2% above estimate). Despite the 2% QoQ uptick in gas transmission volumes, reported EBITDA fell 7% QoQ on higher opex. Gas marketing EBITDA rose 18% QoQ to Rs15.5bn, with RLNG margins at USD0.57/mmbtu. Marketing volumes were largely steady QoQ at 105.5mmscmd (5% beat). LPG transmission EBITDA rose 7% QoQ to Rs1.5bn. Despite higher utilization at 108%, petchem EBITDA loss widened to Rs1.5bn, from Rs1.3bn QoQ, on elevated gas cost, with realization premium to Korea steady at 16%. LPG-LHC EBITDA fell 39% QoQ to Rs1.4bn due to lower realization and higher expenditure. Q2FY26 capex was Rs16.6bn.
Management KTAs
Q2FY26 volumes were impacted by lower offtake from fertilizers (now normal), weak power demand amid monsoon, high spot LNG prices, and rain-related pipeline disruption of 1.5mmscmd. The Srikakulam Angul pipeline was commissioned; MNJJPL and JHBDPL (residual) would be completed in FY27. Tariff order delay is adding Rs0.2/mmbtu/month to the hike. Of the 15.5mmtpa contracted RLNG, only 0.75mmtpa is untied (with 40-45% under swaps). Another 1mmtpa would start flowing from next year. Pata PP and GMPL would be commissioned in FY26, while PDH-PP in FY27, contributing to earnings from FY28. Dabhol’s utilization is restricted at 50%, impacted by a lack of heaters, which should be installed by the next fiscal year. The IPO process for GAIL Gas has started and the consultant would soon be given the order; GAIL Gas may be listed in 1 year.
Valuation
We value GAIL on SOTP-EV/EBITDA, with investments at a 30% holdco discount and unlisted investments at 1.0x BV. We lower Sep-27E EV/EBITDA by 0.5-1.5x for gas transmission, petchem, and LPG-LHC, and raise it by 0.5x for marketing. Key risks: Adverse commodity and currency movement, regulations, outages, and project delays.
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