oil ngas sector update

7/28/2019 Oil Ngas Sector Update

1/5

Please refer to important disclosures at the end of this report 1

The Cabinet Committee of Economic Affairs (CCEA) has announced to raise gas

price to US$8.4/mmbtu effective April 1, 2014 for a period of five years. CCEA

has approved Oil Ministry's proposal to price domestically produced natural gas as

per a complex formula suggested by a panel headed by Prime Minister's economic

advisor Mr. C. Rangarajan. The new price will be applicable to private as well as

public sector companies.

Positive for upstream companies: The hike in gas price is EPS accretive forupstream PSUs even after raising their subsidy burden estimates. Also, it is positive

for private gas producing companies such as Reliance Industries (RIL). Moreover,

higher gas price will incentivize upstream companies to raise production fromnewer blocks. We raise ONGCs EPS by 9.5% as we factor in gas price of

US$8.4/mmbtu, partially offset by our higher subsidy estimates. We raise RILs EPS

by 6.8% for FY2015. We believe that the increase in gas volumes from KG D6block will be a key catalyst for RIL hereon. Gas production from KG D6 block hasdeclined to 18-19mmscmd (against targeted 80mmscmd).

Governments fertilizer subsidy to rise and power subsidy likely to come up: As perPower Ministry, a US$1/mmbtu price increase is likely to impact power sector by

`6,450cr per annum; while as per Fertilizer Ministry, every US$1/mmbtu price

increase is likely to impact the fertilizer sector by`3,155cr per annum. The Finance

Minister has indicated that gas price for fertilizer and power sector is likely to belower than US$8.4/mmbtu even though the gas producer gets a higher price

(US$8.4/mmbtu). Hence, it follows that the differential is likely to be subsidized by

the government. The gas cost for fertilizer and power plants is likely to be in-

between US$4.2/mmbtu (current price) and US$8.4/mmbtu in our view.

Subsidy burden on ONGC and Oil India likely to rise: The government is likely torecover increase in fertilizer subsidy (atleast partially) from ONGC and Oil India in

various forms including higher subsidies, royalty, income tax and dividends.

Hence, while we raise our gas price estimates for ONGC, we also increase the

subsidy borne by ONGC for FY2015. Overall, our EPS estimate for FY2015 stand

revised upwards by 9.5% for FY2015. We raise our target price of ONGC to `387from `372.RIL a key beneficiary of price hike: RIL is likely to be a key beneficiary of theincrease in gas price as unlike PSU upstream companies it does not bear any

subsidy burden. Hence, we raise our gas price estimates for RIL to US$8.4/mmbtu,

which results in our EPS estimates increasing by 6.8% for FY2015. We believe thatthe increase in gas volumes from KG D6 block will be a key catalyst for RIL. However, given the recent rise in the stock price, we maintain our Neutral rating on

the stock.Long term positive for gas transmission companies: The increase in gas price isalso positive (over the medium to long-term) for gas transmission companies such

as GAIL and GSPL and also gas re-gasifying companies such as Petronet LNG. The

transmission companies will benefit with higher utilization of their pipelines as and

when newer production comes up. Petronet LNG will benefit over the long-term as

the spread between domestic price and imported gas price narrows.

Government raises gas priceRIL rejoices, modest gains likely for upstream PSUs

Sector Update | Oil & Gas

June 28, 2013

Bhavesh ChauhanTel: 022- 39357800 Ext: 6821

[email protected]

Vinay RachhTel: 022- 39357600 Ext: 6841

[email protected]


2/5

Sector Update | June 2013

June 28, 2013 2

ONGC

After CCEA announced the gas price hike, we noted that ONGC would have been

key beneficiary of the gas price increase. However, the Finance Minister (later)

indicated that the fertilizer and power companies are likely to get gas at a lower

price than US$8.4/mmbtu although the gas producer will realize a higher price of

US$8.4/mmbtu, implying increase in fertilizer subsidy and a power subsidy. We

believe that government is likely to increase the subsidy burden on upstream

companies including ONGC. Hence, while we raise our gas price estimates for

ONGC, we also increase the subsidy borne by ONGC for FY2015. Nevertheless,

our EPS estimate increases by 9.5% for FY2015. We maintain our Buy rating on

the stock with a SOTP based target price of `387 (previous `372).

Exhibit 1:Change in estimates for ONGC (FY2015)Previous estimate New estimates % change

Gas price (US$/mmbtu) 4.2 8.4 100.0

Gas volumes (bcm) 24.5 24.5 0.0

Subsidy burden (`cr) 39,180 50,984 30.1

EPS (`) 38.3 41.9 9.5

Source: Company, Angel Research

Exhibit 2:SOTP valuationParticulars (` cr) `/shareONGC Standalone(DCF) 288

OVL(Oil- EV/boe $14x Gas Ev/Boe $5x) 52Investment Value(80% mkt Value) 17

Total EV 356Net debt (30)

Equity value (`) 387Source: Company, Angel Research

Reliance Industries

RIL is likely to be a key beneficiary of the increase in gas price as it unlike PSU

upstream companies; it does not bear any subsidy burden. Hence, we raise our

gas price estimates for RIL to US$8.4/mmbtu, which results in our EPS estimatesbeing higher by 6.8% for FY2015. We believe that the increase in gas volumesfrom KG D6 block will be a key catalyst for RIL. However, given the recent rise inthe stock price, we maintain our Neutral rating on the stock.

Exhibit 3:Change in estimates for RIL (FY2015)Previous estimate New estimates % change

Gas price (US$/mmbtu) 5.8 8.4 44.8

Gas volumes (mmscmd) 12 14 16.7

EPS (`) 72.0 76.9 6.8



3/5


June 28, 2013 3

Exhibit 4: Recommendation summary

Companies CMP Target Reco. Mcap Upside P/E (x) P/BV (x) EV/EBITDA (x) RoE RoCE (%)(`) price (`) (` cr) (%) FY14E FY15E FY14E FY15E FY14E FY15E FY14E FY15E FY14E FY15E

Cairn India 290 345 Buy 55,302 19 5.4 5.9 0.8 0.8 2.8 2.4 16.5 13.6 16.0 13.3RIL 862 - Neutral 278,927 - 11.2 11.2 1.2 1.1 6.8 6.5 12.7 11.4 9.6 8.8

ONGC 330 387 Buy 282,416 17 9.5 7.9 1.6 1.4 4.1 3.1 18.3 19.4 19.0 21.1

GAIL 313 - Neutral 39,703 - 9.2 8.8 1.4 1.3 4.2 3.6 16.4 15.2 17.4 16.2

Petronet LNG 125 167 Buy 9,356 34 8.3 7.5 1.8 1.5 5.1 4.4 22.9 21.5 21.6 22.9

Gujarat Gas 190 - Neutral 2,442 - 8.0 7.4 2.2 1.9 4.0 3.4 29.6 28.2 27.2 26.7

GSPL 57 - Neutral 3,227 - 5.7 5.0 0.9 0.8 2.4 1.9 17.3 16.8 19.1 19.1

IGL 268 - Neutral 3,758 - 10.1 8.8 2.1 1.8 4.6 3.9 22.7 21.8 26.6 27.8



4/5


June 28, 2013 4

Disclosure of Interest StatementAnalyst ownership Angel and its Group companies Angel and its Group companies' Broking relationship

of the stock ownership of the stock Directors ownership of the stock with company coveredCairn India No No No No

GAIL No No No No

GSPL No No No No

Gujarat Gas No No No No

IGL No No No No

ONGC No No No No

Petronet LNG No No No No

Reliance Industries No No No No

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors.

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)

Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com

DISCLAIMERThis document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment

decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should makesuch investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies

referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and

risks of such an investment.

Angel Broking Pvt. Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make

investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this

document are those of the analyst, and the company may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and

trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's

fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliablesources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as thisdocument is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any wayresponsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report .Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannottestify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document.While Angel Broking Pvt. Limited endeavours to update on a reasonable basis the information discussed in this material, there may beregulatory, compliance, or other reasons that prevent us from doing so.

This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,

redistributed or passed on, directly or indirectly.

Angel Broking Pvt. Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking

or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or

in the past.

Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from

or in connection with the use of this information.

Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to thelatest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates mayhave investment positions in the stocks recommended in this report.


5/5


June 28, 2013 5

6th Floor, Ackruti Star, Central Road, MIDC, Andheri (E), Mumbai- 400 093. Tel: (022) 39357800

Research Team

Fundamental:Sarabjit Kour Nangra VP-Research, Pharmaceutical [email protected]

Vaibhav Agrawal VP-Research, Banking [email protected]

Bhavesh Chauhan Sr. Analyst (Metals & Mining) [email protected]

Viral Shah Sr. Analyst (Infrastructure) [email protected]

Sharan Lillaney Analyst (Mid-cap) [email protected]

V Srinivasan Analyst (Cement, FMCG) [email protected]

Yaresh Kothari Analyst (Automobile) [email protected]

Ankita Somani Analyst (IT, Telecom) [email protected]

Sourabh Taparia Analyst (Banking) [email protected]

Bhupali Gursale Economist [email protected]

Vinay Rachh Research Associate [email protected]

Amit Patil Research Associate [email protected]

Twinkle Gosar Research Associate [email protected]

Tejashwini Kumari Research Associate [email protected]

Akshay Narang Research Associate [email protected]

Harshal Patkar Research Associate [email protected]

Technicals:

Shardul Kulkarni Sr. Technical Analyst [email protected]

Sameet Chavan Technical Analyst [email protected]

Sacchitanand Uttekar Technical Analyst [email protected]

Derivatives:

Siddarth Bhamre Head - Derivatives [email protected]

Institutional Sales Team:

Mayuresh Joshi VP - Institutional Sales [email protected]

Meenakshi Chavan Dealer [email protected]

Gaurang Tisani Dealer [email protected]

Akshay Shah Sr. Executive [email protected]

Production Team:

Tejas Vahalia Research Editor [email protected]

Dilip Patel Production Incharge [email protected]

CSO & Registered Office: G-1, Ackruti Trade Centre, Road No. 7, MIDC, Andheri (E), Mumbai - 93. Tel: (022) 3083 7700. Angel Broking Pvt. Ltd: BSE Cash: INB010996539 / BSE F&O: INF010996539, CDSL Regn. No.: IN - DP - CDSL - 234 2004, PMS Regn. Code: PM/INP000001546, NSE Cash: INB231279838 /NSE F&O: INF231279838 / NSE Currency: INE231279838, MCX Stock Exchange Ltd: INE261279838 / Member ID: 10500. Angel Commodities Broking (P) Ltd.: MCX Member ID: 12685 / FMC Regn. No.: MCX / TCM / CORP / 0037 NCDEX: Member ID 00220 / FMC Regn. No.: NCDEX / TCM / CORP / 0302.

oil ngas sector update

Documents