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

The Economic Times - - Smart -

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.

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