GAIL - Sharp LNG Price Fall Gives Optimism: Systematix

Systematix Research Report

We cut spot liquefied natural gas price by $5/metric million British thermal unit to $20/15 per mmbtu for FY24E/FY25E. Spot LNG price has corrected to below $15/mmbtu from $23-25/mmbtu a month while it is expected to remain soft in near term on the back of lower demand from increased supply from U.S. and still demand side concern persists.

European gas storage is also at the highest level post winter in last many years. Lower spot LNG price will have a positive impact on -

1. opex of transmission business as the company uses spot LNG to fulfil the gap,

2. lower input cost for petchem division, and

3. revival in transmission volume.

However, trading profit may soft owing to reducing gap between spot and contracted price. Further, integrated tariff for its key nine pipeline is expected in March (after sixth march of open house).

We have raised tariff to Rs 1.9/standard cubic metre for FY24E/FY25E from earlier Rs 1.6/scm while we cut the trading profit on LNG portfolio by 10%.

Overall we raise Ebitda estiamte by 11%/9% for FY24E/FY25E. However, lower spot LNG price would re-rate the sector.

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