Tariff Hike Hopes Push GAIL Stock Higher; CLSA Raises EPS Forecast and Target Price
Shares of GAIL (India) Ltd surged as much as 4.5% on April 21 after global brokerage firm CLSA upgraded the stock to Outperform from Hold, driven by mounting expectations of a significant tariff revision for its natural gas pipeline business. CLSA also raised its target price for the stock to ₹212, citing the likelihood of a 20–25% tariff hike that could be approved during the Petroleum and Natural Gas Regulatory Board’s (PNGRB) June meeting. The upgrade comes amid broader optimism after PNGRB initiated a public consultation process aimed at revisiting piped natural gas (PNG) transportation tariffs.
The upgrade is underpinned by GAIL’s own submission for a revised tariff of ₹77.43 per MMBtu, well above the prevailing rate. CLSA noted that this regulatory development justifies a revised earnings outlook, leading to an upward revision of FY26 and FY27 earnings per share (EPS) estimates by 9% and 19% respectively. Market sentiment around GAIL has responded positively, with expectations firming up that the formal review process could conclude with a favorable outcome within the next three months.
Highlights:
CLSA upgrades GAIL to Outperform, raises target price to ₹212.
Brokerage expects 20–25% pipeline tariff hike by June PNGRB board meeting.
EPS forecast for FY26 and FY27 increased by 9% and 19%, respectively.
GAIL’s proposed tariff hike stands at ₹77.43/MMBtu.
Stock gains up to 4.5% amid optimism over earnings boost.
PNGRB’s Consultation Paper Sets Stage for Tariff Restructuring
The rally in GAIL shares follows PNGRB’s recent move to seek public comments on piped natural gas pricing and regulatory norms. The consultation process, launched via a stakeholder portal last week, seeks industry feedback on revising the current tariff structure and aims to create a more transparent and legally robust framework. The feedback window will remain open until May 1, with GAIL required to respond to PNGRB by May 15.
The outcome of this process is expected to inform the development of Model Revenue Sharing Contracts, a structural reform intended to align regulatory mechanisms with evolving market needs. This consultative approach indicates the regulator’s growing intent to reprice gas pipeline tariffs in line with operational realities, potentially unlocking value for infrastructure providers like GAIL.
Highlights:
PNGRB opens public consultation on PNG tariff restructuring.
Stakeholders have until May 1 to submit feedback; GAIL’s response due May 15.
Aim is to develop Model Revenue Sharing Contracts and improve regulatory clarity.
Regulatory reform expected to benefit gas pipeline operators.
Review could conclude within three months, driving near-term earnings catalysts.
Centre Announces Advance Gas Allocation Reforms Starting FY26
In a parallel development aimed at reinforcing gas sector efficiency, the Government of India has announced sweeping changes to the domestic natural gas allocation framework. Effective from Q1FY26 (April 2025), the Ministry of Petroleum and Natural Gas (MoPNG) will allocate natural gas to City Gas Distribution (CGD) companies two quarters in advance. This move is intended to provide greater planning flexibility for CGD players supplying Compressed Natural Gas (CNG) for vehicles and Piped Natural Gas (PNG) for households.
GAIL and ONGC will now project domestic gas production and supply forecasts in advance, enabling more streamlined downstream operations. The reform also replaces the current auction system for New Well Gas with a quarterly allocation process, based on proportional demand by each CGD company. GAIL has been entrusted with overseeing the distribution, reinforcing its central role in India’s gas infrastructure network.
Highlights:
Centre to allocate domestic natural gas to CGD firms two quarters ahead from Q1FY26.
GAIL and ONGC will forecast gas supply to support proactive planning.
Auction of New Well Gas replaced with need-based quarterly distribution.
GAIL entrusted with gas allocation duties under the revised framework.
Reform aims to support growing CNG and PNG demand from transport and residential sectors.
Falling Crude Prices Enhance Affordability of PNG and CNG
The natural gas policy recalibration comes at a time when global crude oil prices have witnessed a softening trend, translating into expectations of cheaper natural gas for Indian consumers. With piped and compressed natural gas becoming increasingly cost-competitive compared to liquid fuels, demand from both retail and commercial segments is poised to rise further. This dynamic is expected to positively impact CGD firms and their upstream suppliers, including GAIL, which operates one of the largest gas transmission and trading networks in the country.
The Centre has assured that the share of domestic gas for CGD companies will remain steady despite rising demand. This commitment, coupled with reforms in the allocation process and possible tariff revisions, strengthens the revenue visibility for GAIL while positioning it as a key enabler of India’s energy transition.
Highlights:
Crude oil price decline expected to lower input costs for PNG and CNG.
Demand for gas expected to rise due to improved affordability.
GAIL stands to benefit from volume growth and improved pricing power.
Government to maintain consistent share of domestic gas for CGD sector.
Policy synergy enhances long-term earnings visibility for gas infrastructure firms.
