Hike in Gas Price: ONGC, Oil India, Indraprastha Gas to benefit most, GAIL likely to be worst hit; brokerages see up to 160% upside

Brokerages are bullish on shares of natural gas producers after the government on March 31 (Thursday) doubled the administered gas price used to produce electricity, make fertilisers, turn into CNG and piped to household kitchens for cooking. This comes on the back of a spike in global energy prices.  The new price, which is likely to result in a hike in CNG and piped cooking gas rates, will be effective for six months, beginning today, April 1.  

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After this move, the price of gas produced from old regulated fields, such as the nation's largest gas field of Bassein of ONGC, will rise to a record high of USD 6.10 per million British thermal unit (mmBtu) from the current USD 2.90 per mmBtu, said oil ministry's Petroleum Planning and Analysis Cell (PPAC). 

What brokerages say

Brokerage houses Nomura, CLSA and Morgan Stanley see up to 160% upside in oil and gas stocks such as ONGC and Oil India. Besides, they feel Gujarat Gas, Indraprastha Gas and Petronet LNG will be other key beneficiaries.  

As per brokerage house CLSA, hike in domestic gas price to More than Double is a big positive for oil & gas shares such as ONGC and Oil India. It sees 160% upside in ONGC and 130% in Oil India from current levels.    

It is of the view that it is very unlikely that reforms would be rolled back amid high energy prices.   

"Price hike should be manageable for Indraprastha Gas and Mahanagar Gas if domestic gas supply is reinstated, " it adds.  

Doubling APM gas prices, sharp increase in ceiling is good for upstream gas producers and negative for consumers, says Nomura. It expects further hikes in gas prices in October.  

"CGDs have taken sharp price hikes already. GAIL is likely to see worst Impact," it says.  

Nomura maintained buy rating on Mahanagar Gas with target price of Rs 1100, which translates into an upside of 41% on March 31 CPM of Rs 779 per share.  

Maintaining buy rating on Indraprastha Gas, Nomura sees an upside of 47% in this gas stock. The target price put out by the brokerage is Rs 550 for this scrip. 

In Gujarat Gas, Nomura maintained a buy rating with target price of Rs 875 a share. On CMP of Rs 503 recorded on Thursday, the upside comes out is 73% for Gujarat Gas shares.  

The brokerage firm maintained a neutral rating on ONGC with target price of Rs185, which is an upside of 12% at closing price of Rs 164 on March 31. 

It also maintained neutral rating on GAIL with target price of Rs 155.  

Morgan Stanley prefers gas producers ONGC and RIL and maintains underweight call on gas midstream players such as Petronet LNG & Gujarat Gas. It says India’s gas producer prices have more than doubled in the past six months  and may see 25% hike in October as gas market remain in tight spot. 

The government sets the price of gas every six months -- on April 1 and October 1 -- each year based on rates prevalent in gas surplus nations such as the US, Canada and Russia.

The increase in gas price is likely to result in a 10-15 per cent rise in CNG and piped cooking gas rates in cities such as Delhi and Mumbai, industry sources said.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)