Saturday, May 22, 2010

>APM Gas Price De-regulation (ANGEL SECURITIES)

The Government of India has approved a hike in the APM gas price sold by ONGC and OIL from nomination blocks from Rs3.20/scm to Rs6.82/scm. Prices are now at US $4.2/mmbtu (pre-royalty adjusted) from US $1.9/mmbtu earlier. After the hike, APM prices are now in line with EGoM-determined gas prices for the KG-D6. APM gas prices were last revised in 2005. The move follows the Finance Ministry's suggestion of bringing about pricing parity between APM and KG gas in one swift move, rather than a phased increase in the APM gas prices as was proposed by the petroleum ministry. The prices will be effective until March, 2014 (FY2014).

In a related development, the cabinet has also approved the marketing margins of US $0.112/mmbtu (Rs200/scm) for GAIL on APM gas marketing volumes. Previous to this, GAIL did not receive any marketing margin on sales of APM gas.

Impact Analysis
We expect ONGC to gain around Rs6,086cr on the Top-line front and Rs4,047cr on the bottom-line front during FY2012E, thus translating into an EPS gain of Rs18.9/share. However, as we were building around a 15% increase in APM gas prices over FY2010-12E, our Top-line and bottom-line for the company stands increased by Rs5,039cr and Rs3,351cr for FY2012E. Thus, we expect an EPS accretion of Rs15.7/share on account of the gas price increase to Rs6.8/scm.

We expect OIL India to gain around Rs941cr on the Top-line front and Rs622cr on the bottom -line front during FY2012E, thus translating into an EPS gain of Rs25.9/share. Given the fact that OIL India's net gas realisations were lower than that of ONGC's APM realisation, it stands to benefit more on account of the increase in the gas prices to US $4.2/mmbtu.

GAIL uses gas for its petrochemical and LPG operations; however, as it was not procuring APM gas, the company is not likely to be impacted by the gas price hike. Yet, we believe that the levy of marketing margins on the APM gas increased GAIL's Top-line and profitability. According to our calculations, GAIL benefits by around Rs344cr on the Top-line front and Rs239cr on the bottom-line front, which translates into an EPS increase of Rs1.9/share (FY2012E), on account of the levy of marketing margins on the APM gas supplies.

To read the full report: APM GAS