Dalal Street Investment Journal - - RECOMMENDATIONS -

This Ma­haratna com­pany is en­gaged in nat­u­ral gas pro­cess­ing and dis­tri­bu­tion. Re­cently, Gov­ern­ment of In­dia’s at­tempt to rene­go­ti­ate on the im­port pric­ing pol­icy of LNG with Australia is ex­pected to ben­e­fit gas util­i­ties. Thereby GAIL, which also buys im­ported gases, would ben­e­fit from re­duc­tion in the prices. Stand­ing at 78MMSCMD, GAIL has shifted its pref­er­ence more to­wards long term con­tracts in LNG. The LT con­tracts in­creased to 20 FROM18MMSCMD while ST con­tracts de­clined to 8 from 15. Fi­nan­cially, de­spite sub­dued rev­enue growth, the stock's EBITDA and profit mar­gins have shown sub­stan­tial growth amid de­cline in raw ma­te­rial, em­ployee ben­e­fit and im­pair­ment of as­set ex­penses. More­over, the com­pany has been re­duc­ing its debt YOY since FY15, keep­ing D/E at 0.1x. The only risk per­sists is off­take obli­ga­tion of 5.2 mil­lion tonnes of US LNG in 2018. How­ever, it would sign one deal soon to hire LNG tanker for three years with a French oil com­pany to haul the same gas. We rec­om­mend a BUY in the scrip for a tar­get price of ₹435 and with a stop loss of ₹370.

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