Motilal Oswal's research report on GAIL (India)
We visited the Vijaipur plant of GAIL (I) and were joined by senior management from the company, including Shri R K Jain, Director Finance. The management highlighted two futuristic projects, which form the cornerstone of the net zero and gas penetration strategies; (a) the first entails a 4.3tpd green hydrogen project, key to achieving decarbonization objectives and marking a significant milestone in the company's pursuit of a long-term target of 20% hydrogen blending in natural gas, (b) GAIL (I) also highlighted the small scale LNG project (SSLNG), which the management believes would be instrumental in improving LNG availability in underpenetrated areas. We remain positive on GAIL (I) as the capex cycle unwinds. The company has continued to explore new avenues for investments such as green hydrogen, SSLNG, and even coal to gas/chemicals. At ~11x FY26 P/E and the current dividend yield of ~2%, we believe valuations remain reasonable. We retain a BUY rating on the stock.
Outlook
We remain positive on GAIL (our top pick in CY24), valuing the core business at 12x FY26E adjusted EPS of INR15.1. Adding the value of listed and unlisted investments of INR34, we arrive at our revised TP of INR215. Our TP implies FY26E P/B of 1.7x. The stock is currently trading at an FY26E P/B of 1.5x. Reiterate BUY.
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