After the government passed on several key recommendations of Kirit Parikh's committee, major oil and gas companies have started to trim their natural gas such as CNG and PNG prices. The latest to do so would be Gail (India) following Indraprastha Gas, Mahanagar Gas, and Adani Total Gas. The gas price revision is likely to improve cash flow in the companies.
GAIL has trimmed its CNG and piped cooking gas aka PNG prices by up to ₹7 in various states. Meanwhile, Mahanagar Gas has reduced CNG prices by ₹8/kg and Domestic PNG (DPNG) by ₹5/SCM in and around Mumbai. Also, Indraprastha Gas trimmed CNG and PNG prices by ₹6 in the national capital.
Along similar lines, Adani Total Gas has reduced its CNG price by 8.13 per kg and those of piped natural gas by 5.06 per standard cubic metre (scm).
The move comes after the Government of India passed several key recommendations made by the Kirit Parikh Committee with respect to the pricing of natural gas produced from APM fields. These are legacy fields and largely held by PSUs like ONGC. The revision in domestic natural gas prices has come into effect from April 8th. Majority of the company's price revision in CNG and PNG has come into force from April 9th.
In a report, research analysts at ICICI Direct said, "With the implementation of this pricing, APM gas prices would be subjected to a floor and ceiling price of $4/mmbtu and $6.5/mmbtu, respectively (earlier APM price being $8.57/mmbtu)."
Further, the brokerage explained that --- the pricing formula for HPHT fields like that of Reliance Industries has not been changed while the price for April 1-October 1, 2023 is at $12.1/mmbtu (from US$12.5/mmbtu earlier). Prima facie, the step would be beneficial for domestic gas-consuming companies like IGL and MGL (80%, and 85% volumes sourced from APM, respectively), while GGL would benefit up to a limit (~25% of volumes largely sourced from APM).
On the other hand, the brokerage also added that "upstream companies would see an immediate correction in their realisation although they still remain above historical averages."
ICICI Direct has given a "Buy" recommendation on five stocks in the oil and gas basket after the latest price revision in the industry. These are:
1. ONGC -- (Buy for TP of ₹180) --- the decline in APM prices would reduce ONGC's net realisation by US$2/mmbtu ( ₹6/scm) but would still continue to remain above historical averages.
2. Reliance Industries -- (Buy for TP of ₹3,050) --- the decline in HPHT prices on Apr 1st would reduce RIL's net realisation by $0.35/mmbtu (Rs1/scm) but would still continue to remain above historical averages. Also, as per media sources, currently there has been no mention of giving marketing freedom to its gas pricing which was also a key recommendation made by KPC.
3. Indraprastha Gas -- (Buy for TP of ₹463) --- revision in gas pricing would reduce IGL's gas sourcing cost by ₹6/scm. Assuming the company passes on this benefit to the customers, the brokerage expects their volumes to grow going ahead.
4. Mahanagar Gas -- (Buy for TP of ₹980) --- this new prcicing would reduce MGL's gas sourcing cost by ₹6/scm. The company has already announced a ₹2.5/kg cut in its CNG price. Assuming the company continues to pass on this benefit to the customers, the brokerage expects their volumes to grow going ahead.
5. Gujarat Gas -- (Buy for TP of ₹465) --- the company is also likely to be benfited from this price revision to a certain extent, but the company being a key beneficiary of decline in LNG prices and increase in crude prices, the brokerage expects its industrial volumes to increase going forward.
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