GAIL outlook brightens as tariff hike, volume revival boost FY27 prospects

GAIL India’s medium-term earnings outlook has strengthened, with recent tariff revisions, improving transmission volumes and resilient gas marketing performance positioning the state-run utility for robust growth from FY27 onwards, analysts said. 

 

While the latest integrated tariff hike announced by the Petroleum and Natural Gas Regulatory Board (PNGRB) fell marginally short of expectations, both Nomura and Motilal Oswal analysts see attractive value emerging at current valuations, underpinned by strong free cash flows and a favourable demand environment.

 

Tariff reset below expectations but strengthens earnings visibility

 

PNGRB, in its 27 November order, raised GAIL’s integrated pipeline tariff by roughly 12 per cent to ₹65.7 per mmbtu, effective 1 January 2026. The increase is slightly below Nomura’s ₹70 per mmbtu estimate and Motilal Oswal’s expectation of $67-71 per mmbtu equivalent. 

 

Regulators have deferred certain cost components submitted by GAIL to avoid a sharp one-time hike for consumers, with these likely to be reassessed in the next tariff cycle from April 2028. This moderation led Nomura to trim its FY27-28 Ebitda estimates for the transmission business by about 8 per cent each.

 

Even so, both brokerages underscore that the tariff reset, GAIL’s first in several years, provides much-needed visibility and forms the backbone of strong Ebitda expansion ahead. Nomura expects consolidated Ebitda to rise nearly 18 per cent year-on-year in FY27, driven by the tariff increase and about 9 per cent volume growth. Motilal Oswal similarly notes that the tariff revision alone could lift FY27 PAT by around 7 per cent, while overall Ebitda estimates for FY27 have been raised by 7 per cent following the order.  CATCH STOCK MARKET LIVE UPDATES TODAY

Volumes and marketing margins seen rebounding from FY27

 

Transmission volumes, a sore point in FY26 due to flood-related disruptions, muted power-sector offtake and supply constraints, are set to rebound meaningfully in FY27 as temporary hurdles fade. A recovery in gas consumption from fertilisers and power, alongside improving industrial demand, reinforces confidence in sustained pipeline throughput growth.

 

GAIL’s gas marketing business also appears on steady footing despite elevated Henry Hub prices. Management, in its recent interaction with Nomura, reiterated its ₹4,000-4,500 crore Ebit guidance, noting that around 20 per cent of its US LNG volumes remain exposed to price spreads between Henry Hub and Brent-linked contracts. Other operational updates include a reduction in non-APM gas allocation for LPG production, ongoing pipeline development to support feedstock supply for the upcoming PDH unit, and progress toward its renewable energy target of 3.7 GW by 2025 for captive usage under its net-zero roadmap. GAIL Gas’ proposed IPO also remains under discussion.

 

On the valuation front, both brokerages highlight compelling entry points. GAIL’s FY27 EV/Ebitda multiple of about 7.3x remains at a discount to its historical average of 7.5x, according to Nomura. Motilal Oswal points out that the stock trades near its long-term average of ~1.1x one-year forward core P/B, offering limited downside and supported by strong dividends and free cash flow generation. Market correction since late 2024 has further improved the risk-reward proposition.

 

Reflecting their revised assumptions, Nomura has cut its SOTP-based target price to ₹214 from ₹223 while maintaining a Buy rating. Motilal Oswal has increased its target price to ₹220 from ₹205 and also reiterates a Buy stance.

 

That said, despite the tariff hike marginally undershooting expectations, brokerages agree that GAIL is positioned for multi-year earnings growth aided by higher tariffs, volume normalisation, strengthening visibility in marketing margins and a healthy balance sheet. 

Disclaimer: Target price and stock/sector outlook has been suggested by Motilal Oswal and Nomura. Views expressed are their own.