GAIL shares at Rs 150 or Rs 215: Should you buy, hold or sell this PSU stock?

A couple of brokerages, which attended Analyst Meet hosted by GAIL Ltd said they remained positive on GAIL, as the capex cycle unwinds and the PSU explores new avenues for investments such as green hydrogen, SSLNG, and even coal-to-gas or chemicals. That said, they differ in terms of stock valuations.

GAIL shares have seen a strong rerating, rising 66 per cent in the last year. The excitement around the GAIL’s stock reflects euphoria among non-institutional investors for PSU stocks in general and earnings upgrades in the case of GAIL, largely due to an upward revision to marketing margins on its traded gas volumes, said Kotak Institutional Equities.

At 11 times FY26 PE and the current dividend yield of 2 per cent, Motilal Oswal said valuations remain reasonable for the GAIL stock as it suggested a 'BUY' on the stock with a target of Rs 215 rating on the stock.

Kotak Institutional Equities disagrees.  It said the optimism around GAIL’s stock may be misplaced due to downside risks to earnings, given optimistic assumptions regarding GAIL’s two key businesses (gas transmission, gas marketing) and inadequate appreciation of the challenges of its business model, which results in a large disconnect between the Street’s valuation approach and GAIL’s business model.

Nuvama Institutional Equities said GAIL is a diversified play on India’s gas consumption with growth driven by gas transmission, trading volume growth and high petchem capacity. But a low utilisation of pipeline and cyclical nature of the petchem business remain key challenges.

GAIL's initiatives towards becoming net zero by 2040 led by hydrogen blending, Green H2 production, setting up CBG plant and LNG dispensing stations, nonetheless, provide it an edge, it said. while suggesting a ‘HOLD’ on the stock with a target of Rs 151.

Among the new initiatives, GAIL has Started India’s maiden Green Hydrogen project to produce 4.3TPD of hydrogen (10 MW solar capacity) using proton exchange membrane at a capex of Rs 23 crore at Vijaipur and is likely to come on stream by end-CY24.

Nuvama said at solar cost of Rs 2.8/kw and 55kw required for 1 kg of hydrogen, green hydrogen cost could be $2.5 per kg. Furthermore, the yearly maintenance cost of the project stands at 1 per cent of project cost.

GAIL has also begun blending 5 per cent Green hydrogen in the PNG network and 2 per cent hydrogen in the CNG network on a pilot basis within its subsidiary Avantika Gas.

In addition, it plans to blend 5 per cent Green H2 within its CNG network and is currently conducting the viability study for the same. GAIL is also in the process of setting up its first LNG dispensing station at its Vijaipur plant with capacity of 17.5ton at a project cost of Rs 150 crore.

The GAIL management highlighted that GAIL’s LPG output has been constrained due to the ongoing decline in ONGC’s rich Mumbai high APM gas production while it is difficult to get rich gas via the LNG route.

"We maintain BUY (revised target of Rs 195) due to steady volume growth visibility in the gas transmission and trading business, coupled with higher transmission tariff, on account of various policy tailwinds. At CMP, the stock trades at 1.8x FY26E P/B and 12.4x FY26E PE," JM Financial said.