ICICI Securities expects GAIL’s gas trading and petchem business to remain under pressure

Brokerage firm ICICI Securities on Tuesday revised the price target for GAIL (India) Ltd. lower to Rs 127 apiece from Rs 137 earlier citing the challenging environment faced by the company’s gas trading and petrochemical businesses. However, it retained its ‘buy’ rating on the stock.

The brokerage made the revision after meeting GAIL’s senior management for an update on business and the outlook ahead.

It highlighted that GAIL has been struggling after Gazprom’s gas supply of 2.4 million tonnes per annum (MTPA) under a long-term LNG contract has been disrupted since May 2022. Notably, it has not been reinstated yet.

GAIL has tried to mitigate this shortfall of 8-9 mmscmd by cutting supplies to the fertilizer and power sectors while reducing utilization of its Pata petrochemical plant (in Uttar Pradesh) to less than 40 percent.

“Even then, some customer obligations of 1-1.5 mmscmd still need to be fulfilled,” the brokerage highlighted.

It added that going ahead additional volumes from Reliance Industries Ltd. (RIL) and Oil and Natural Gas Corp. Ltd (ONGC) should help GAIL in overcoming the shortfall. But, transmission volumes are expected to be impacted for the rest of the current and the first half of the upcoming financial year,

However, on the positive side, the brokerage firm also expects a material upside in transmission tariffs from next year due to an improved regulatory environment, which should augur well for GAIL.

Citing the Gazprom supply constraints, which may persist over the next 12 months, ICICI Securities cut GAIL's EPS target for the current and upcoming financial year by 10 percent and 9 percent respectively to factor in lower trading margin, lower petchem and transmission volumes, which will be partially offset by higher transmission tariffs.

Shares of GAIL are trading 0.3 percent lower at Rs 97.31.