7_iifl - oil & gas - oct 2014
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India - Oil & Gas
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Institutional Equities
Figure5:Historically,IGLhasalwayspassedongascostsandmaintaineditsmargins
Source:Company,IIFLResearch
Figure6:CNGstilloffershugesavingsvs.liquidfuels
Source:Industry,IIFLResearch
Gujarat Gas (BUY) 5-6% hike in CNG prices required low riskto margins:
As against IGL, for Gujarat Gas (GGAS), CNG comprises just 18% ofvolumes and 6-7% consists of domestic PNG. Thus, on overall
company basis, GGAS would have limited impact of APM gas priceincrease since APM gas accounts for only ~20% of total gas basket.The balance requirement is met through other domestic sources
such as PMT + Cairn (for which prices have not been changed) andR-LNG.
Assuming 80% of the APM gas is consumed in GGAS CNG operations(~18% of the volumes or 0.4mmscmd), the price increase requiredin CNG would be ~5% to neutralize the impact of higher gas cost.
Impact on Power companies:
Power cost to increase 25-30% to Rs5/unit:
India has a total installed gas-based generation capacity of 22.5GW(10% of all India installed capacity ex-renewable energy). The PLFof the gas-based stations declined 4500bps to 22% over FY11-1HFY15 (see figure 7) due to: 1) lower domestic gas availability;and 2) lower off-take from SEBs of expensive power based on R-LNG.
A 50% increase in APM gas price is estimated to increase the cost ofgeneration by 25-30% from Rs3.9/unit to Rs4.8-5/unit. This wouldfurther lower offtake from SEBs and impact plant utilization (PLF).
Further, at the new APM price, the variable cost of generation isRs3.1/unit (see figure 6). On back-calculating, the coal equivalentcost works out to be US$93/MT (low GCV imported coal) this is 2x
of the prevailing market price of imported coal.
22GW of operational project and 5GW of under-constructionproject at risk:
Given the weak financial health of SEBs, we see low demand forsuch expensive power, placing 22GW of operational and 5GW ofunder-construction capacity at risk of being stranded.
Most of the operational capacity operates on vanilla ROE basis,which allows utilities to recover fixed costs based on plant
availability (irrespective of the actual generation). However, goingforward, we see: 1) SEBs challenging such contracts in the relevant
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Institutional Equities
Date Close price(Rs)
Target price
(Rs)
Rating
25 Oct 2011 426 421 REDUCE07 Dec 2011 400 372 REDUCE
31 Jul 2012 356 370 REDUCE15 Feb 2013 335 550 REDUCE29 May 2013 327 320 REDUCE27 May 2014 410 400 REDUCE
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P ric e TP /Re cochangeddate(Rs)
HPCL:3yearpriceandratinghistory
Date Close price
(Rs)
Target price
(Rs)
Rating
12 Jun 2014 401 400 REDUCE
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IndianOilCorporationLtd:3yearpriceandratinghistory Date Close price(Rs)
Target price
(Rs)
Rating
15 Jan 2014 206 300 BUY12 Jun 2014 360 374 BUY27 Jun 2014 328 375 BUY
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P ric e TP /Re cochangeddate(Rs)
GAILIndiaLtd:3yearpriceandratinghistory
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Institutional Equities
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OilIndia:3yearpriceandratinghistoryDate Close price
(Rs)
Target price
(Rs)
Rating
15 Nov 2011 1290 1570 BUY
13 Feb 2012 1321 1300 ADD29 May 2012 450 520 ADD20 Dec 2012 457 560 BUY13 Feb 2013 534 700 BUY14 Aug 2013 475 560 BUY28 May 2014 579 600 BUY
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ONGC:3yearpriceandratinghistoryDate Close price
(Rs)
Target price
(Rs)
Rating
08 Nov 2011 277 330 BUY09 Feb 2012 283 275 ADD30 May 2012 256 290 ADD27 Nov 2012 250 260 ADD12 Feb 2013 308 380 BUY13 Aug 2013 278 320 ADD
20 Mar 2014 314 400 BUY30 May 2014 374 480 BUY
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RelianceIndustries:3yearpriceandratinghistory Date Close price(Rs)
Target price
(Rs)
Rating
17 Oct 2011 867 1000 BUY03 Jan 2012 707 960 BUY23 Jan 2012 793 760 REDUCE24 Feb 2012 833 740 REDUCE15 May 2012 681 730 REDUCE22 Jun 2012 719 665 REDUCE23 Jul 2012 723 680 REDUCE16 Oct 2012 823 740 REDUCE21 Jan 2013 900 805 REDUCE15 May 2013 798 830 REDUCE22 Jul 2013 924 840 REDUCE
21 Apr 2014 957 880 REDUCE
Date Close price
(Rs)
Target price
(Rs)Rating
21 Jul 2014 977 1200 BUY01 Sep 2014 999 1320 BUY