KG D6 gas will drop reliance on world imports: Sunidhi Sec

In an interview with CNBC-TV18, Tarun Surana, Research Analyst at Sunidhi Securities, spoke about his reading of the market and his outlook.

Below is a verbatim transcript of the interview. Also watch the video.

Q: How would you react to this news, which companies would you buy?

A: This news is very positive. If the gas allocation indeed comes through then it will add the urea capacity to the country and will reduce the dependence of imports from world markets. On specific company side it is early to comment on the companies that will benefit out of it because these are sick units of PSUs which will be tendered upon and investors will be invited to submit their bids. The government is still working out the financial model of how to go about the revival.

Q: But would you not want to be ahead of the curve? Do you have any favourites as to who could be potential buyers or beneficiaries of this; is Rashtriya Chemical Fertilisers (RCF) a candidate at all?

A: See RCF, National Fertilisers Ltd (NFL), Krishak Bharati Cooperative (KRIBHCO) they were already setting up a special purpose vehicle (SPV) for Barauni unit revival which is part of Hindustan Fertiliser Corporation Ltd ( HFCL ). So they were already there. However my interactions with the industry suggest that they will not go ahead until they get a very clear cut policy which is favourable. The current investment policy on urea is not favouring the companies and not motivating the companies to go ahead with revival plans. However a better policy which will yield in a better internal rate of return (IRR) is expected. We are expecting, the third week of August will be the time line when urea investment policy will be announced and by then industry, typically RCF, NFL these are PSUs where government can back for one or two units of revival. So Barauni plan is already there. Apart from that RCF is also looking to revive Talcher unit along with  GAIL and Coal India Ltd (CIL) through coal gasification route.

Q: You said it is too early at this point to react, realistically what kind of a time line you think the industry is really working with in terms of this revival?

A: Revival takes about 3-4 years from day zero when the financial closure happens and after the policy the proposal will first go from Ministry to Empowered Group of Secretaries, then it will to EGoM and then final cabinet approval will come. So it is at least 3-6 months of time line before cabinet approval comes in finally for revival of these units. Today’s news which has come just says that gas will be allocated from D6 block as and when the gas production goes up. However for a firm policy in place and companies to buy these sick units and revive them will take at least 6 months to start and 3-4 months for production to be on ground.