In its latest research update dated March 20, 2025, Motilal Oswal Financial Services has reaffirmed a BUY rating on GAIL (India) Ltd., setting a target price of Rs 195, which implies a potential upside of 16% from its current market price of Rs 168. Backed by a strong natural gas transmission outlook, substantial capacity ramp-up in the petrochemical segment, and improving financial metrics, the brokerage’s positive stance reflects its confidence in GAIL’s transition into a diversified energy player. Despite a near-term correction in share price, the long-term fundamentals remain robust, positioning GAIL as a high-yield, value-driven play in India’s evolving energy landscape.

Transmission Volumes and Tariff Upside to Drive Core Earnings

GAIL’s gas transmission segment is emerging as the company’s bedrock of stability and earnings growth. According to Motilal Oswal, transmission volumes are projected to rise from 120 mmscmd in FY24 to 150 mmscmd by FY27. This is in alignment with India’s ambitious energy transition roadmap.

India’s natural gas consumption is estimated to surge nearly 60% by 2030, driven largely by the City Gas Distribution (CGD), power, and industrial sectors. A likely tariff hike of 10-12% in FY26 could provide a 5% incremental boost to GAIL’s PAT, with volume expansion adding additional tailwinds.

Petrochemical Business Undergoes Strategic Transformation

The petrochemical segment, once viewed as cyclical and margin-sensitive, is undergoing a significant shift at GAIL. With investments close to Rs 173 billion in upcoming facilities, GAIL will see its capacity expand from 810 ktpa to ~2.7 mmtpa by FY27.

More importantly, the product mix will evolve. Ethylene and its derivatives, which currently dominate, will make up just 30% of the portfolio by FY27, while PX and propane-based products will contribute 70%. This feedstock and product diversification is expected to reduce earnings volatility and make petchem a consistent contributor to group EBITDA.

Free Cash Flow Inflection Point: From Heavy Capex to Monetization

GAIL’s large-scale capital expenditure phase is reaching maturity. Between the Mumbai-Nagpur-Jharsuguda and Durgapur-Haldia pipelines, and petrochemical expansions in Usar and Pata, GAIL has committed over Rs 325 billion.

As these projects become operational in FY26 and beyond, free cash flow is projected to rise from Rs 48.1 billion in FY25 to Rs 82.9 billion in FY27. With limited major capex plans post-2026, this shift could also unlock dividend growth potential—offering a compelling dividend yield of 4.3% in FY27.

Valuation and Sum-of-the-Parts Breakdown

Motilal Oswal’s valuation is anchored in a Sum-of-the-Parts (SoTP) model that reflects GAIL’s diversified business:

This SoTP approach values each vertical distinctly, reflecting both the core operations and upside from listed investments.

LNG and Global Gas Dynamics Support Long-Term Growth

The LNG landscape is pivotal to GAIL’s business. India’s LNG demand is forecast to grow at a CAGR of 11% until 2030, touching 64 bcm annually. GAIL, with its regasification infrastructure and trading presence, is positioned to benefit from both long-term contracts and spot market volatility.

Shell’s 2025 outlook suggests softer LNG prices in 2HCY25 due to new supply coming online, which could aid GAIL in optimizing margins during procurement.

Valuation Looks Attractive Amid Sector Correction

GAIL’s standalone business trades at a forward P/E of 8.1x FY26E earnings, a steep discount from its 5-year average of 13.2x. While the stock corrected over 30% in recent months, its improving return ratios (RoE expected at 14.2% in FY26) and a solid dividend yield make the current levels attractive for value investors.

Final Word: Steady Gas Flow, Diversified Future

GAIL’s transformation story is unfolding—beyond being a pure-play pipeline operator to a multi-vertical energy enterprise. With investments nearing completion, tariff catalysts in sight, and LNG market tailwinds, Motilal Oswal’s BUY call is backed by a strong thesis. The next few quarters could prove decisive in rerating the stock toward the Rs 195 target.