Buy GAIL; target of Rs 220: Emkay Global Financial

Emkay Global Financial's research report on GAIL

GAIL posted Q3FY25 SA adj EBITDA of Rs28.4bn, at a 13% miss due to adjusted gas marketing EBITDA (ex-Rs24.4bn Sefe settlement) coming 51% below estimate on commodity volatility and gas shortfalls. Petchem was also lower at 35%, but partly offset by better LPG-LHC and transmission segments. The mgmt reiterated its transmission volume guidance of 129-130mmscmd in FY25 and 10mmscmd growth each in FY26-27. Marketing margin guidance is Rs45bn each for FY25 and FY26. Multiple pipeline and petchem projects are expected to be completed in FY26, with petchem profit likely to improve. We cut FY25-27E EPS by 13-15% each, to factor in the lower RLNG marketing margin, higher gas costs for LPG-LHC, and lower petchem margin ahead.

Outlook

We lower our target EV/EBITDA multiple to 7x from 7.5x, and cut Dec-25E TP by 14% to Rs220. We retain BUY on attractive valuation and upcoming pipeline tariff triggers.