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GAIL’s EBIT Drops to a Staggering Low, Underlines the High Price Risk Associated with U.S LNG Contracts

As per Fitch Ratings, GAIL India limited registered 82 per cent fall in pre-tax profit (EBIT) to approximately INR 4800 million y-o-y basis, highlighting the price risk associated with long term contract of LNG from U.S. State owned gas transportation and marketing company, has also revealed that it incurred a negative EBIT of around INR 6100 million on the back of loss suffered due to large volumes of gas from HH contracts amid its dampened demand in the country. Fitch stated that GAIL is at vivid risk of further loss due to price uncertainties prevailing from a low crude environment. GAIL mostly safeguards its profit margins by limiting LNG import values on near term basis. However, the remaining cargoes of LNG suffers depreciation in times of its feeble consumption and relatively low spot prices. With company dwelling on sales of a large share of LNG to fertilizer plants, it is company is likely to witness few more losses on delay in commencement of certain fertilizer projects post lockdown. There is some relief anticipated on improved spot prices of Asian LNG by above 3 USD, aiding the downward crawl in market fundamentals to a certain extend. However, in the long run, recovery in LNG consumption coupled with new pipeline project of GAIL are perceived to clear the threats of slumping revenue.