Emkay Global has revised its rating for GAIL (India) Ltd, upgrading the stock to 'Buy' from 'Add'. The brokerage firm has maintained its target price of Rs 200 for GAIL shares, which suggests an approximate 16% upside from the current trading price of Rs 173. The upgrade comes as Emkay highlights a robust core business, positive earnings projections, and appealing valuations for the public sector undertaking.
Driving Factors Behind the Upgrade
The upgrade is primarily supported by an improved outlook for Indian gas demand, which demonstrated sequential growth in the second quarter despite challenges such as the Strait of Hormuz crisis and elevated LNG prices. Gas demand in July-August 2026 saw only a marginal 2% year-on-year decline, with GAIL's gas transmission volumes expected to improve sequentially and potentially surpass the company's fiscal year 2027 guidance of 123 million standard cubic meters per day (mmscmd).
While Emkay anticipates a sequential dip in GAIL's gas marketing profitability due to normalizing formulaic trailing averages, it projects a significant beat on the company's FY27 gas marketing earnings guidance of Rs 40-45 billion. This optimistic view is underpinned by stable Henry Hub settlement prices and sustained high oil and spot LNG prices. Emkay's analysis incorporates a Brent crude price assumption of $85 per barrel, adjusting from an average of around $100 per barrel in the first half of FY27.
Petrochemicals and Financial Projections
GAIL's petrochemicals segment is also poised for sequential improvement, with the Pata plant utilization expected to near 100%. Higher oil prices are forecasted to bolster polyethylene realizations, potentially turning petrochemical EBITDA positive after a marginal loss in the first quarter of FY27.
Emkay has consequently raised its earnings-per-share (EPS) estimates for GAIL by 2-3% for FY27-29. The revised estimates for FY27 include a revenue of Rs 1.47 lakh crore, EBITDA of Rs 17,148 crore, and an adjusted profit after tax of Rs 11,108 crore. The projected EPS for FY27 stands at Rs 16.9, an increase from the previous estimate of Rs 16.5.
Future Growth Drivers and Projects
Beyond current operations, GAIL's upcoming petrochemical projects are identified as significant growth catalysts. The Mangalore PTA and Usar PDH-PP projects are slated for commissioning within the next 1-1.5 years. Although Emkay has factored in the associated capital expenditure, it has conservatively not included any contribution from these projects into its current earnings estimates.
Furthermore, GAIL is exploring entry into the fertilizer sector with two urea projects, boasting a combined capacity of approximately 2.5 million tonnes per annum. These projects, strategically located along the Mumbai-Nagpur-Jharsuguda pipeline, are expected to deliver assured returns of 12-16% and generate anchor gas volumes of around 4-5 mmscmd for the pipeline network.