We recently interacted with the Management of GAIL (India) Ltd. to understand the latest developments in gas trading and petrochemical segment. The key takeaways of the interaction are enumerated hereunder. GAIL has sold 70% of US LNG in deals with the term extending up to 20 years to several domestic LNG consumers, including spot/medium-term LNG buyers and fertiliser companies.
Fertiliser companies can purchase domestic/LNG up to price of $9/mmbtu for urea production. GAIL has earned $0.7/mmbtu gas trading margins on US LNG during 9MFY19. If we assume 70% of US LNG volume to earn a margin of $0.35/mmbtu in the long-term then it suggest 2.5% upside to our target price. We revise our Target Price to `388 primarily on the back of market value of investments.
