Gas price hike will get thumbs up from market: Prayesh Jain

The hike in gas prices was expected to come at USD 6.4-6.6 per mmbtu, says Prayesh Jain, AVP- Research Analyst, IIFL. Talking to CNBC-TV18, he said it is much ahead of expectations.

Earnings per share (EPS) estimates for Reliance, ONGC and Oil India will go up, but the main thing to be looked at is what kind of subsidy the government levies on these upstream companies, he said. Below is the edited transcript of his interview with CNBC-TV18
 
Q: The decision is out its USD 8.4 not USD 6.7, so they have decided to be bolder than what was anticipated. Your first thoughts? A: Definitely much ahead of our expectations. We were expecting the hike to come in the range of around USD 6.4-6.6 per mmbtu. So, definitely its much ahead of what we were expecting and definitely we will get a thumbs up in the stock markets on Friday. Q: In terms of the kind of earnings per share (EPS) impact this decision will have likely beneficiaries like Oil and Natural Gas (ONGC), Oil India, GAIL, and Reliance. What would you be working with, how would you review or recalibrate your EPS? A: Definitely the EPS estimates for Reliance, ONGC and Oil India will go up. Reliance it would be anywhere around 10-11 percent kind of jump for FY15 numbers depending on what kind of volume assumptions we have and ONGC and Oil India much higher jump in terms of their earnings because of the higher sensitivity – anywhere around 30-35 percent kind of jump in the EPS estimate. But the main thing again to be looked at is what kind of subsidy the government levies on these upstream companies.  With respect to GAIL, we feel that the earning could be impacted substantially because of their petrochemical division which uses a lot of gas. So, in the near term GAIL could be impacted negatively.