GAIL transmission growth outlook strengthens on NIPU-2026-led domestic gas demand

Investment View and Key Thesis

Motilal Oswal Financial Services Ltd. reiterated its Buy rating on GAIL (India) Limited in its August 6, 2026 update, titled “NIPU-2026: A game changer for India's gas demand outlook”. The broker believes stronger structural domestic gas demand should support GAIL’s natural-gas transmission and marketing volumes, while the stock’s valuation, free-cash-flow outlook and dividend yield offer an attractive risk-reward balance.

The broker’s target price is Rs 205, compared with the current market price of Rs 176.

India’s Gas Demand Outlook

MOFSL expects India’s natural-gas demand growth to accelerate to 5-6 per cent CAGR over FY26-FY31, compared with 3.2 per cent CAGR over FY16-FY26. The broker identifies three key drivers:

• Around 20 mmscmd of demand from 8-9 new urea plants under the National Investment Policy for Urea-2026.
• Around 28 mmscmd of incremental city-gas-distribution demand, assuming 10 per cent CAGR over FY26-FY31.
• More than 20 mmscmd of additional demand from refinery and petrochemical expansions.

The report notes that NIPU-2026 provides a more attractive investment framework for gas-based urea projects, including an assured post-tax return on equity of 12-16 per cent, subject to efficiency norms.

Fertilizer Project Opportunity

GAIL has signed an MoU with Rashtriya Chemicals and Fertilizers to develop a 1.27 million tonne per annum gas-based urea plant in Vidarbha, Maharashtra, through a special-purpose vehicle. GAIL is also pursuing a proposed wholly owned Chhattisgarh fertilizer project.

MOFSL estimates capital expenditure of around Rs 1,00,000 crore for each project. Each 1.27 million tonne per annum plant could require around 2.5 mmscmd of gas transmission and marketing volumes through GAIL’s Mumbai-Nagpur-Jharsuguda pipeline. This creates a potential opportunity of around 5 mmscmd when both projects are commissioned.

Final investment approval remains pending. The projects are expected to take 4-5 years from approval to commissioning, and MOFSL has not included fertilizer-project capital expenditure in its estimates.

Operating Outlook

The broker forecasts GAIL’s natural-gas transmission volumes to rise to 127 mmscmd in FY28E from 122 mmscmd in FY26. It expects a substantial improvement in petrochemical performance during FY27E-FY28E as new capacity becomes operational and spreads bottom out.

MOFSL also cites guided gas-trading EBIT of at least Rs 4,000 crore in FY26 and FY27. Estimated gas-transmission EBIT is expected to rise from Rs 6,200 crore in FY26 to Rs 7,500 crore in FY28E, while petrochemical EBIT is forecast to recover from a Rs 570 crore loss in FY26 to a Rs 3,100 crore profit in FY28E.

Financial Forecasts

For FY26, the financial table shows net sales of Rs 1,38,600 crore, EBITDA of Rs 10,330 crore and adjusted PAT of Rs 6,440 crore. MOFSL forecasts adjusted PAT to increase 46.5 per cent to Rs 9,430 crore in FY27E and a further 10.5 per cent to Rs 10,410 crore in FY28E. This implies a 27 per cent FY26-FY28 PAT CAGR.

Valuation and Free Cash Flow

MOFSL notes that GAIL’s core business, excluding listed and unlisted investments, trades at around 1 times one-year forward price-to-book. This is near its five-year long-term average and below the 1.7 times level reached in September 2024.

The broker expects robust free cash flow as the multi-year capital-expenditure cycle tapers. It estimates cumulative free cash flow of Rs 10,750 crore over FY27E-FY28E.

Sum-of-the-Parts Valuation

MOFSL’s sum-of-the-parts valuation supports its target price of Rs 205.

Key Thesis Sensitivities

The key sensitivities to MOFSL’s thesis are the final approval and execution of the fertilizer projects, transmission-volume growth, petrochemical-spread recovery and sustained trading profitability.