LPG Gains, Higher Petchem Capacity to Power GAIL
In the LPG space likely to continue due to higher realisation in the March quarter; stock at a small premium to its long-term average
count for nearly a quarter of the total EPS growth for the next year.
Analysts are cautious about the risk from long-term contracts benchmarked to Henry Hub — a gas pricing gauge used in the US. The supply of these contracts will start from early next year. Given that the landed cost of the US gas is expected to be higher and the prices of imported gas are lower, the Street expects GAIL to bear some losses on the long-term contracts.
However, during an analyst call after the latest quarterly results, GAIL said that it was confident of selling the contracted supply from Henry Hub. The company is working on converting short-term supply agreements to long term to improve revenue visibility. However, it may end up compromising on the marketing margin.
GAIL’s stock has outperformed the S&P BSE Oil & Gas index in the past three months. However, it still trades at a meagre premium to its long-term average given worries over the potential impact of the US contracts.