Gas prices hiked
The APM and HPHT gas prices have been reset by 40%/26%, respectively, for H2FY23. ONGC/OIL will earn US$8.57/mmbtu for the APM gas, while wellhead prices of gas produced from deepwater fields of RIL will be US$12.46/mmbtu on GCV basis. The bi-annual price revision is according to a transparent pricing formula set by the government. It was speculated that the government may not hike the APM/HPHT gas prices, as it has constituted a committee under Kirit Parekh to consider possible changes in the pricing formula.
Upstream and RIL set to gain
Analysts at IIFL Securities note the APM gas prices have seen an increase of 379% in past 18 months. However, these lag the spot (US$42/mmbtu) and term LNG contracts (US$14.5/mmbtu). Owing to sharp increase in gas prices, they see ONGC and OIL’s FY23/24 EPS changing by 5-13%. RIL - currently producing 18 mmscmd gas from deepwater fields - has contracted 6 mmscmd gas through auctions (~8% Brent), and will see gains on the balance leading to 2.5-5% EPS hike through FY23/24.
Cost push across user base
The variable cost of gas-based power plants will see increase of 35% (~Rs4.25-4.5/unit); becoming further unviable. There will also be increase in fertilizer subsidy. Perhaps, falling offtake from power sector may allow higher allocation to CGDs to offset incremental costs. CGDs need to raise prices by 10-12%. While they have pricing power, they may offer price stability and pursue volume growth. Sharp correction in their stock prices should offer good opportunity to accumulate.
Highest impact of gas price hike is on OIL, the lowest on RIL
EPS impact | FY23E | FY24E |
ONGC | 5.2% | 12.9% |
OIL | 5.6% | 12.7% |
RIL | 2.5% | 5.2% |
Source: Company, IIFL Research
E: Estimates
Related Tags
IIFL Customer Care Number
(Gold/NCD/NBFC/Insurance/NPS)
1860-267-3000 / 7039-050-000
IIFL Securities Support WhatsApp Number
+91 9892691696
www.indiainfoline.com is part of the IIFL Group, a leading financial services player and a diversified NBFC. The site provides comprehensive and real time information on Indian corporates, sectors, financial markets and economy. On the site we feature industry and political leaders, entrepreneurs, and trend setters. The research, personal finance and market tutorial sections are widely followed by students, academia, corporates and investors among others.
Stock Broker SEBI Regn. No: INZ000164132, PMS SEBI Regn. No: INP000002213,IA SEBI Regn. No: INA000000623, SEBI RA Regn. No: INH000000248
This Certificate Demonstrates That IIFL As An Organization Has Defined And Put In Place Best-Practice Information Security Processes.