ICICI Securities has reiterated a BUY rating on GAIL (India) Ltd, projecting a target price of Rs 245, implying a strong 35% upside from the current market price of Rs 182. Despite recent turbulence stemming from one-off events in its trading segment, analysts foresee a steady recovery in earnings. With India’s rising natural gas demand, upcoming tariff hikes, and GAIL’s expansion across pipeline networks and petrochemicals, the company is positioned for medium-term growth. Valuations remain compelling, with a forward P/E of 9.1x FY27E and steady improvement across return ratios. The recommendation underscores GAIL’s resilience and strategic positioning in India’s evolving energy landscape.

Temporary Setbacks Masking Long-Term Strength

GAIL’s Q3FY25 results were marred by multiple one-off disruptions that negatively affected its trading segment. These included:

A mismatch between purchase and sale contract durations,

Unhedged U.S. Henry Hub-linked volumes,

Emergency procurement of costly spot cargoes.

Despite this, ICICI Securities believes these issues are transitory. For FY26-27E, most volumes have been secured under back-to-back agreements, and the crude price gap affecting contract arbitrage has already narrowed. The segment’s quarterly run-rate is now expected to stabilize at Rs 15 billion, enabling the stock to rebound in earnings momentum.

Transmission Volumes to Ride the Demand Wave

India’s overall gas demand is on an uptrend, growing ~25% YoY in 10MFY25, driven by:

Accelerated City Gas Distribution (CGD) projects,

Fertilizer plant expansions, especially along the Eastern gas grid,

Rebound in industrial consumption and

Higher load factors for gas-based power generation.

This demand surge is expected to support 9-10 mmscmd annual growth in transmission and trading volumes for GAIL over FY25–FY27E.

Segment-Wise Outlook: Challenges and Stabilization

Petrochemicals: The segment, previously burdened by high-cost gas allocation, is now receiving term LNG, improving its cost structure. Margins are expected to recover, aided by demand growth and stabilization in realizations.

LPG & Liquid Hydrocarbons: The removal of priority gas allocation has hit volumes. However, cost-saving initiatives—such as shifting production from low-utilization Gujarat units to more efficient Madhya Pradesh units—are likely to mitigate earnings impact.

Regulatory Tailwinds from Tariff Review

A long-pending tariff revision could act as a material upside trigger. The Petroleum and Natural Gas Regulatory Board (PNGRB) has released a consultation paper, signaling possible tariff increases. A 10% tariff hike alone could boost FY26 EPS by ~8%, as per ICICI’s estimates.

Further, proposed amendments to fuel cost regulations could support GAIL’s plea to revise internal gas usage assumptions upwards from USD 3.6/mmbtu, aligning with market realities.

Valuation Snapshot: Attractive Multiples, Healthy Margins

ICICI’s sum-of-the-parts (SOTP) valuation model for GAIL pegs the FY27E intrinsic value at Rs 245 per share, broken down as follows:

At current levels, GAIL trades at 9.1x FY27E earnings and 7.2x EV/EBITDA, making it one of the more attractively valued energy stocks with a defensive profile.

Financial Projections: Growth With Margin Expansion

GAIL is expected to clock an EPS CAGR of 9.3% over FY25–FY27E. Here's the earnings summary:

EBITDA margins are forecasted to rise from 10.7% in FY24 to 15.6% in FY27, supported by higher capacity utilization and improved pricing across segments.

Key Catalysts and Risks

Upside Triggers:

Higher-than-expected gas demand,

Tariff approvals from PNGRB,

Lower LNG procurement costs.

Downside Risks:

Persistent weakness in petrochemical/LPG margins,

Lower utilization of pipelines,

Narrowing arbitrage between U.S. and Asian LNG markets.

Final Word: Value Buy with Structural Tailwinds

While near-term trading volatility has clouded sentiment, GAIL’s diversified business model, dominant pipeline network, and policy support offer a compelling investment thesis. With India's decarbonization goals accelerating gas adoption, GAIL remains a critical beneficiary.

ICICI Securities maintains a BUY, targeting Rs 245, underpinned by margin resilience, regulatory headroom, and sector tailwinds. Investors with a 12–18 month horizon may find this an opportune entry point.