GAIL - Re-Rating On The Cards Driven By A Sharp Improvement In ROE, FCF: Motilal Oswal

Motilal Oswal Report

Fueled by rising transmission volumes and a turnaround in petrochemicals, we are forecasting GAIL India Ltd.'s return on equity to improve to ~15% by FY26 from a low of 9.5% in FY23. A combination of the upcoming gas price-related tariff hikes, an Ebitda compound annual growth rate of 32% over FY23-26E, and onset of new projects can drive a re-rating in our opinion.

Despite capex mounting 64% over FY24-26E (versus average. for FY19-23), we estimate that the company will report a free cash flow of Rs 45.6 billion in FY26.

Further, we highlight optionality from GAIL India Gas, which can provide value unlocking up to Rs 14.3/share for the parent (GAIL India Ltd.)

We value the core business at 12 times December ’25E adjusted earning per share of Rs 13.7, as we roll forward our valuations to December ’25. Adding the value of listed and unlisted investments of Rs 30, we arrive at our revised target price of Rs 195. Our TP implies FY26E P/B of 1.6 times.

The stock is currently trading at an FY26E P/B of 1.3 times. Reiterate 'Buy'.

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