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- CLSA: Higher LNG prices should allay gas-trading fears, which have been an overhang.
GAIL India was the stock in focus as both CLSA & Goldman Sachs reiterated their buy stance on the stock and believed that the company would be benefitting from an improved macro-economic environment across segments
CLSA believes that the Positive macro conditions across liquid natural gas (LNG) trading, liquefied petroleum gas (LPG) production, and petrochems segments should ensure strong 4Q results for Gail. They say Rising domestic gas production and pipeline completions point to a sustained volume-growth period for the flagship gas transmission business. CLSA believes that higher LNG prices should allay gas-trading fears, which have been an overhang.
CLSA states that Asian LNG prices are more than double 1HFY21 averages on improving demand outlook. They believe that moderation in global LNG capacity addition in 2021-22 amid improving demand should boost global LNG utilisation rates and support LNG prices. CLSA believes that this may signal an end to the worst period for Gail’s LNG trading business, which has been an overhang. Gail’s petrochems and LPG businesses positively leverage it to crude prices, as per CLSA
Goldman Sachs reiterated their Buy rating with 36% upside potential to their target price of Rs180.
They see GAIL as a unique beneficiary of (1) disruption-led strength in PE prices which we expect to be sustainable (2) an expected cyclical recovery in oil prices from supply lagging demand which drives LPG and trading margins, and (3) structural growth in pipelines’ gas volumes (6% FY20-24E CAGR) with more consuming capacity connecting to the gas grid in India.
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