The Election Commission (EC) has taken a surprising decision to defer the natural gas price hike saying that the matter is sub judice and pending in the Supreme Court. This move comes as a surprise as the Cabinet Committee on Economic Affairs (CCEA) cleared the gas price hike proposal way back in June, 2013. The decision on gas pricing would now only be taken post Lok Sabha elections when the new government comes in power.
''The decision is a setback for oil & gas upstream companies (Reliance Industries, ONGC & Oil India) in the near-term as FY15E earnings would be negatively impacted. We revise ONGC and Oil Indias FY15E EPS downwards to Rs 28 and Rs 59.9, respectively, taking into account gas price of USD 4.2 a mmbtu against our earlier estimate of USD 6.3 a mmbtu. Although lower gas prices would be positive for Gail's LPG and petrochemicals business, we do not expect GAIL to benefit fully due to an increase in subsidy burden from the earlier Rs 14 billion to Rs 18 billion. We expect Gail's EPS to increase from Rs 34.3 to Rs 35.5 for FY15E. We have increased Gail's target price from the earlier Rs 395 to Rs 409,'' said ICICIdirect.
''As natural gas is the raw material for gas distribution companies, no gas price hike would be positive for them in terms of volumes. We expect only a marginal positive impact on Gujarat Gas and Indraprastha Gas as we believe the benefits of current gas prices would be given to the customers. We have revised Gujarat Gas and Indraprastha Gas' FY15E EPS marginally to Rs 29 and Rs 29.2, respectively,'' the stock broker said.
''Over the next few years, higher gas prices would be essential for companies for new fields to be commercially viable. In case of production sharing contracts (PSC), gas prices are needed to be revised as per market rates in the time horizon as mentioned in the contract. The new government's opinion on the Rangarajan Committee price formula and gas price would be critical in finalizing the new natural gas price as would the time taken for the same,'' it added.
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