Why GAIL Has Only One ‘Sell’ Rating

Why GAIL Has Only One ‘Sell’ Rating

Rising liquefied natural gas prices have made it profitable for GAIL (India) Ltd., the nation’s largest distributor, to sell the commodity in the domestic market.

The Singapore liquified natural gas prices, the benchmark LNG prices for Asia, have surged nearly 58 percent so far in the quarter ending June. GAIL buys LNG at contracted prices in the international market and sells at prevailing market prices in India—the business generates nearly 70 percent of its revenue.

GAIL has long-term contracts with the U.S. and Russia for delivery of more than 8 million tonnes per annum of LNG. Earlier, the gas trading business was suffering a loss as the prices in the domestic market were low. As a result, the landed cost of LNG was higher than the Indian spot price.

The contracted U.S. and Russia LNG prices are now at a discount to spot LNG, CLSA said. The recent surge in LNG prices, which is expected to stay till March 2019, might convert GAIL’s unsold long-term LNG from a big risk into an asset, according to the foreign brokerage. Read More

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