GAIL India to import 5 MT of LNG from the US next fiscal

GAIL India
GAIL (India) will import about 5 million tonnes (MT) of LNG from the US next fiscal, replacing the volumes the state-owned utility buys from the spot market. The company has contracted 5.8 MT per annum of liquefied natural gas (LNG) from the US, some of which it has swapped - either by exchanging the gas with someone having it nearer to India or by time-swapping it.

This will improve GAIL India’s margins from next fiscal onwards due to savings from switching from high cost spot LNG to lower cost LNG.

The lower gas prices improve the outlook for all of GAIL’s business divisions: 1) Gas Transmission 2) Gas trading 3) Petchem.

We expect 13% earnings CAGR over FY17-19E EPS on the back of 1) steady volume growth in the core business and 2) stabilization of the petchem units. The stock trades at ~16x FY20E earnings. We have a positive outlook on the stock.

GAIL (India) Ltd is currently trading at Rs492.8, up by Rs11.85 or 2.46% from its previous closing of Rs480.95 on the BSE. The scrip opened at Rs487.9 and has touched a high and low of Rs494.6 and Rs481 respectively.




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