ONGC, Oil India, IGL, MGL & Gujarat Gas: What analysts said on Kirit Parikh committee recommendations

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The Kirit Parikh Committee has submitted its report on natural gas prices, recommending a cap of $4-6.5 per mmbtu for gas produced from old fields by ONGC and Oil India, with the cap increasing by $0.5 per mmbtu every year. Has been and there is deregulation from January 2027. ,

To encourage new investments, the committee suggested that pricing and marketing freedom should be given to gas produced from new fields. Analysts are of the view that the development is quite positive for ONGC and Oil India. He added that if the recommendations are implemented, it would be a short-term positive, but a long-term negative for City Gas Distributors (CGDs).

In the short term, capping is seen as positive, as CGD will benefit from lower domestic and spot LNG prices at current market prices, but the benefit of the reduction in APM gas price is to be passed on to consumers and, therefore, the margin for CGD will result in this reduction. may not increase.

“We believe that domestic APM gas price of $6.5 per mmBtu, lower than the current APM gas price of $8.57 per mmBtu, is positive for the CGD sector,” JM Financial said.

“However, if the price of domestic APM gas is deregulated, the competitiveness of the CGD sector could be harmed in the long term. We believe that given the detrimental impact on key consumer segments (CGD and fertilizer sectors) The chances of its final implementation are slim.”

JM Financial said the recommendation on domestic APM gas price for ONGC and Oil India is neutral-to-positive in the medium term as it expects a net gas price of $6.6 per mmBtu in FY23 and $5.6 per mmBtu in FY24. Thinking about getting it.

“Unlike in the CGD sector, deregulation of domestic APM gas price from 27th January could be significantly positive for ONGC/Oil India in the long term. Despite near term headwinds for margins/volumes despite higher global gas price , We maintain Buy on IGL (target Rs 500), Gujarat Gas (Rs 600) and MGL (Rs 1,000). We maintain Buy on ONGC (Rs 205) and Oil India (Rs 250) in strong dividend scenario maintain.

“Domestic APM may not provide significant savings against auto fuels for shortfall when combined with other high-cost gases,” said Motilal Oswal. The brokerage is neutral on IGL with a target price of Rs 406. Given its attractive valuation, Mahanagar Gas is recommended to buy. Gujarat Gas, Motilal Oswal said, is its preferred choice because of its high industrial exposure.

Motilal Oswal said the recommendations would increase gas prices and be negative for the CNG segment of companies. ONGC and Oil India will be guaranteed a minimum of $4 per mmBtu for their APM gas, it said, adding that the recommendations have come as a big relief to ONGC and Oil India as they had to produce gas below the cost of production for a long time. .

“The recommendations will be positive for ONGC and Oil India and negative for CGDs like IGL and MGL, which will be most adversely affected,” it added.

Kotak Institutional Equities said that when the APM price was increased from $6.1 to $8.6 per mmBtu, in expectation of relief from the Kirit Parikh panel, most CGDs did not undertake the required price hike. Against the required hike of Rs 12-14 per kg, IGL hiked by Rs 3 per kg, MGL by Rs 9.5 per kg, while some CGDs (such as Gujarat Gas) kept the price unchanged. As such, the margins of IGL and MGL declined sequentially in Q2FY23.

“In our view, at a price of $6.5/mmbtu, APM gas is unsustainable for price-sensitive sectors such as power and CGD. Suggests an annual increase in the ceiling price by $0.5 per mmbtu and final linkage to oil prices at 10 per cent” given. The slope may deter CGD investment,” it said.

India’s gas consumption has not increased in the last 10-11 years, only CGD consumption has increased by 2.5 times, given the low APM value, 100 percent allocation and also controlling petrol/diesel prices for many years.

“Now, with APM prices high, allocation not 100 per cent, and petrol/diesel prices stagnating, CGD growth may also slow down significantly. Whereas for legacy CGDs (such as IGL, MGL, or Gujarat) The impact may be less. Gas), we feel that the planned investment in new CGD may get stalled.”

MK Global said the move towards market-linked pricing is structurally positive for upstream and a floor of USD4/MMBtu will support earnings in case of downside.

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