Impact of proposed gas price hike

The controversial Indian Oil Minister Mr. Murli Deora has proposed a 31% hike in the regulated domestic gas price to US$2.55/mmBtu from US$2.34/mmBtu to benefit Reliance Industries indirectly. This will also help ONGC to some extent, but you know the Ministry’s intention.

The fertiliser and power ministries are likely to oppose the steep price hike and we believe the final gas price could be lower than that proposed. The near term positive impact of higher gas price would be ONGC’s FY10E-11E EPS going up by around 2.0-2.5%.

Apart from this, there will be fuel pricing reforms any time soon, we prefer ONGC over the oil marketing companies (OMCs), whose earnings face greater uncertainty than ONGC.