Antique Stock Broking has maintained a ‘Hold’ rating on GAIL (India) Limited, setting a target price of ₹189, citing concerns over margin compression in the company’s trading operations despite steady volume growth. At a current market price (CMP) of ₹197.65, the stock appears to be fairly valued amidst headwinds in trading profitability.
Key Highlights on GAIL India:
- Henry Hub-linked US Gas Contracts:
GAIL’s Henry Hub-linked US gas contracts have been a key driver of trading profits recently. However, Antique highlights that these contracts have also caused losses in the past due to oil-linked sale contracts. - Structural Shift in Henry Hub Prices:
The brokerage believes that sub-US$2/mmbtu Henry Hub prices are no longer sustainable, forecasting a structural shift to prices above US$3.5/mmbtu, driven by new LNG export terminals and slowing production growth. - Impact of Oil Prices:
With oil prices settling below US$75/bbl, trading margins are under pressure. This has impacted 50–60% of GAIL’s US LNG contract volume of 5.8 million tonnes per annum (mn tpa), which is linked to oil prices. - Profitability Challenges:
While GAIL’s volume growth is expected to continue at 6–7%, Antique anticipates a hit to trading profits, estimating an annual impact of ₹13 billion. - Earnings Adjustments:
To account for the margin squeeze, Antique has revised its EBITDA estimates for FY25, FY26, and FY27 downward by 3.4%, 5.4%, and 3.4%, respectively.
GAIL’s diversified portfolio continues to deliver steady volume growth, but the trading segment faces headwinds due to rising Henry Hub gas prices and subdued oil prices. While the structural shift in Henry Hub pricing may support sustainable trading profits in the long run, current oil price levels are likely to weigh on margins in the near term.
Disclaimer: This article is for informational purposes only. Please consult a certified financial advisor before making any investment decisions.
