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MOSL: OIL & GAS: CGDs - CNG segment faces the steepest uphill battle ever; Domestic gas prices to rise by ~USD1/mmBtu

OIL & GAS: CGDs - CNG segment faces the steepest uphill battle ever; Domestic gas prices to rise by ~USD1/mmBtu

 

• Since the start of the current domestic APM pricing regime in Nov'15, domestic gas prices have risen only four times, the maximum being INR1.6/kg.
• If we rebase to 1QFY16, the retail CNG price (in Delhi) has risen by a meager 13%, while domestic APM gas price has fallen by 56%, resulting in EBITDA/scm rising to INR8 in 4QFY21 from INR5.6 in 1QFY16 for IGL.
• MAHGL has been more aggressive, doubling its EBITDA/scm to INR12 over the same period. GUJGA has different dynamics at play due to its least exposure to CNG.
• In this report, we highlight that IGL and MAHGL face the steepest uphill battle so far, when domestic gas prices are expected to rise by ~60%, or INR4/kg, excluding taxes.
• Demand from Oil Marketing Companies (OMCs) to hike commissions aggravates the trouble. We maintain our Neutral/Buy rating on IGL/MAHGL.
•  Expect ~60% rise in domestic APM price from Oct’21, the highest ever; another one around the corner in Apr’22
• Domestic gas prices are linked to four international hubs: Henry Hub, Alberta, NBP, and Russia.
• HH gas price has risen to USD2.7/mmBtu for the next pricing cycle from USD2/mmBtu in the existing pricing cycle. Alberta prices have also moved to USD2.2/mmBtu from USD1.7/mmBtu.
• As a result of this, we expect domestic APM gas prices to be raised to USD3.1/mmBtu from USD2/mmBtu (NCV), the highest ever increase. If the current trend in gas prices remains, we may see another hike in Apr’22.