GAIL's gas trading gains and stronger transmission volumes drive 2QFY27 earnings beat

Investment View and Target Price

Motilal Oswal’s November 1, 2026 results update reiterates a Buy rating on GAIL and a sum-of-the-parts-based target price of Rs 200 per share. The positive view is supported by strong gas-trading profitability, improving natural-gas transmission volumes, potential free-cash-flow generation and valuations that are near historical averages.

The broker estimates a 24 per cent CAGR in adjusted PAT over FY26-FY28, driven by higher transmission volumes and improved gas-marketing profitability.

2QFY27 Financial Performance

GAIL’s standalone 2QFY27 EBITDA was Rs 64.1 billion, 36 per cent above Motilal Oswal’s estimate of Rs 47.1 billion and ahead of consensus at Rs 45.2 billion. Reported PAT was Rs 46.5 billion, 40 per cent above the broker’s estimate of Rs 33.3 billion and above consensus of Rs 30.3 billion.

The result beat was led by natural-gas trading and the LPG and liquid-hydrocarbon businesses. Gas-transmission EBIT was in line with expectations, while marketing EBIT and LPG and liquid-hydrocarbon EBIT were 43 per cent and 65 per cent above estimates, respectively. The petrochemical operating loss was lower than expected, although petchem sales volume of 188 thousand tonnes was 22 per cent below the broker’s estimate.

Natural-Gas Transmission Outlook

Natural-gas transmission volume was 130 mmscmd in 2QFY27, 6 per cent above Motilal Oswal’s estimate and up 5 per cent YoY. Management raised FY27 transmission-volume guidance to 126-127 mmscmd from 123 mmscmd earlier.

Stronger demand from the power and fertiliser sectors supported volumes. Management expects FY28 transmission volumes of 134-135 mmscmd, supported by CGD expansion and a recovery in refinery consumption. CGD consumption has increased to around 54-55 mmscmd from approximately 45 mmscmd in the prior year, while refinery demand remains around 5 mmscmd below historical levels.

Gas Marketing and Petrochemicals

Gas Marketing

Gas-marketing EBIT was Rs 67.7 billion in 2QFY27, aided by cross-index sales. Management increased FY27 gas-marketing PBT guidance to Rs 90-95 billion and guided to Rs 45-50 billion in FY28 under normalised market conditions, with marketing volumes of around 100 mmscmd or more.

Management cautioned that the elevated margins earned in 1HFY27 are unlikely to sustain into 2HFY27 as pricing averages converge. The gradual reversal of the GCC-to-Brent pricing-swap benefit is a key risk to gas-marketing profitability. GAIL’s RLNG allocation under the Petronet LNG contract has remained suspended since March 4, 2026, although the company is mitigating the impact through spot LNG and alternative procurement.

Petrochemicals and GAIL Gas

Petrochemical EBITDA turned positive at Rs 900 million in 2QFY27 because of a favourable gas-sourcing mix. Management said the Pata plant was operating near breakeven with gas prices of around USD14 per mmbtu and petrochemical realisations of Rs 1,36,000-1,37,000 per tonne.

The 500 ktpa PDH-PP plant is targeted for completion in June 2027, although management has flagged a potential delay of around six months. GAIL Gas plans to add around 275 CNG stations and 3.7 lakh new domestic PNG connections over two years ahead of its proposed FY28 IPO. The Board has approved dilution of up to 25 per cent in GAIL Gas and the transfer of six CGD geographical areas to the subsidiary from January 1, 2027.

Valuation and Cash-Flow Outlook

Motilal Oswal values GAIL using a sum-of-the-parts approach, applying target multiples of 8 times EBITDA for gas transmission, 6 times for gas trading, petrochemicals and LPG, and 7 times for LPG transmission, while also including investments.

This valuation produces an implied equity value of Rs 1,317 billion, equivalent to Rs 200 per share. The broker expects RoE to stabilise at around 12 per cent in FY28 and forecasts free cash flow of Rs 144 billion across FY27-FY28.

Key Monitorables and Risks

Key monitorables include pipeline-project completion, commissioning of the PTA and PDH-PP facilities, expansion of the Konkan LNG terminal and any outcome from the Rs 15 per mmbtu tariff-hike petition.

• A rise in System Use Gas pricing
• Weaker gas-marketing margins
• Project delays
• High LNG prices