iSec analyst positive on these gas stocks after CNG price comes down to less than half of petrol

The recent reduction in gas prices by Mahanagar Gas (MGL) has helped compressed natural gas (CNG) become nearly 50% cheaper compared to petrol or diesel, highlighted Probal Sen, an Energy Analyst at ICICI Securities.

He is positive on GAIL, Indraprastha Gas Ltd (IGL), and MGL from the city gas distribution (CGD) space.

Mahanagar Gas on October 1 cut the retail price of CNG by Rs 3 per kg and domestic piped natural gas (PNG) by Rs 2 per SCM in and around Mumbai.

“If crude prices remain at these strong levels, then there is no downside risk to the cap of $75 per barrel realisations for Oil and Natural Gas Corporation (ONGC) and Oil India and their gas realisation at $6.5 is still well above their last 7-8 year averages. So those five names will continue to be strong,” he said.

Sen believes the price cuts will increase the competitiveness of CNG and PNG prices against petrol and diesel.

Sen pointed out that last year the price gap between petrol/diesel and CNG had narrowed to a multi-year low, at close to 25%. This was making it uneconomical for people to opt for CNG vehicles. The narrowing gap will help in the shift to CNG vehicles, he said.

In May, MGL announced a collaboration with the Brihanmumbai Municipal Corporation (BMC) to establish the largest bio-gas plant in Asia within Mumbai. This facility is designed to process 1,000 tonne of wet waste daily, ultimately handling one-third of Mumbai's daily wet waste production when fully operational.

In the case of OMCs, despite the refining strength, there are still losses in the marketing segment and that he expects will keep the stocks in a narrower range.

According to industry insiders, state-owned oil marketing companies (OMCs) like Indian Oil Corp. Ltd (IOC), Bharat Petroleum Corp. Ltd (BPCL), and Hindustan Petroleum Corp. Ltd (HPCL) are currently experiencing a cash deficit in diesel sales.

OMCs estimate that they are facing an under-recovery of Rs 9 to Rs 10 per liter on diesel, and this figure could have been higher if it weren't for strong refining margins and the offset provided by export cess, which is helping the companies partially absorb some of the marketing losses.

Sources indicate that diesel is a particularly challenging issue, with some cash losses already being incurred. On the other hand, when it comes to petrol, companies are estimated to be incurring an under-recovery of Re 1 to Rs 2 per liter.

These losses persist even as the price of the Indian crude oil basket has decreased from $97 per barrel on September 29 to below $94 per barrel on October 2.