At newest futures, FY22-FY23e Brent is 5-4%, FY23e deepwater and APM gas rates are 40-60% and FY22e LPG cost is 22% above our estimates. Net effect of this, upside to NRL’s FY22e GRM and downside to ONGC’s FY22-FY23e gas sales, is upside to FY22-FY23e EPS of ONGC of 8-27%, OIL of 14-17% and GAIL of 27-6%.
APM gas cost surge may perhaps pose challenge to Gujarat Gas (GGL), MGL and IGL as CNG cost may perhaps will need to be hiked by 49-53% in Oct’21-Oct’22 to pass on gas expense rise and sustain margins. Spot LNG surge may perhaps push GGL in the red in FY22e if there is no additional cost hike downside to FY22e EPS would be 21% if additional cost hike lifts margin to Rs 4.5/scm (Rs 5.5/scm in base case).
Upside to our FY22e-FY23e Brent, deepwater and APM gas at newest futures: On futures as of 8-Sep’21, FY22e-FY23e Brent at $70.7-67.5/bbl are 5-4% above our estimates. At HH and NBP gas rates based on newest futures, FY23e APM gas cost at $6.8/mmbtu would be 60% greater than our estimate. Deepwater gas cost at spot LNG futures as of 8- Sep’21 at $11.8/mmbtu is 40% greater than our estimate.
8-27% upside to ONGC & OIL’s FY22e-FY23e EPS: Factoring in Brent and LPG ($659/t) based on newest futures, NRL’s FY22e GRM at $37/bbl but decrease than estimated gas sales volumes for ONGC, we estimate upside to FY22e EPS of ONGC at 8% and to that of OIL at 14%. Upside to FY23e EPS of OIL and ONGC is estimated at 17-27%.
27-6% upside to GAIL’s FY22e-FY23e EPS: At Brent and HH futures as of 8-Sep’21, GAIL’s FY22e-FY23e gas advertising Ebitda at Rs 19.4-27.4 bn is 30% under our estimates. However, corporation commentary in last two earnings calls suggests: (i) 20% of HH-linked US LNG would be sold at spot rates in FY22-FY23 (ii) 52.5-27.5% of US LNG in FY22e was tied up and hedged when Brent futures had been at $54.3-65.7/bbl and (iii) 50-15-15% of US LNG in FY23e was tied up when Brent futures had been at $63.4-68.2/bbl. In this situation (most most likely), FY22-FY23e gas advertising Ebitda at Rs 52.2-48.6 bn is estimated to be 89-24% above base case.
21-107% downside to GGL’s FY22e EPS if gas expense rise is not completely passed on: At newest Brent and spot LNG futures, GGL’s delivered gas cost for industrial customers is estimated at $14.3-17/mmbtu in Q2-Q4FY22e. We estimate Ebitda margin at Rs .75/scm in Q2 and Rs .4/scm in FY22e if no additional cost hike is made. Further 38-47% cost hike is necessary on 1-Dec’21 for FY22e Ebitda margin to be at Rs 4.5- 5.5/scm. Downside to FY22e EPS would be 107-21% if margin is at Rs .3-4.5/scm.