`Draft hydrocarbon policy to help GAIL, GSPL;hit Petro LNG'

The government has issued a new draft hydrocarbon policy under which blocks will be awarded on the basis of a simpler revenue-sharing model versus the earlier profit-sharing model. Speaking to CNBC-TV18, Jal Irani of Edelweiss says the policy is at an extremely preliminary stage and may help valuation re-rating in some, but rules out any near-term earnings trigger. He also does not see any immediate gains for the sector. He expects gradual valuation re-rating for gas transmission companies like GAIL and GSPL. However, Petronet LNG's terminal value is expected to decline, he told CNBC-TV18.Below is the verbatim transcript of Jal Irani's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: What is your take, who benefits with this, largely the pipeline companies?A: This is a very good proposal that the government has put forward after a very long time and very much needed. This firstly gives a full marketing price and marketing rights to the companies which is specially very important for gas where potentially the pricing could be nearly double of what the new blocks would be getting versus the current prices.The second thing is that the revenue sharing model has been proposed versus the contentious profit share model.Regarding who would benefit -- essentially because this is all forward looking and exploration and production (E&P) is a fairly long-term business. Therefore the immediate beneficiaries may not be significant. Notably there is an estimate out that capital expenditure in the sector may increase by USD 100 billion. So obviously the service providers would benefit more immediately but where the oil and gas companies directly are concerned, there are no immediate significant beneficiaries.A valuation rerating nevertheless is likely to happen for the gas pipeline transmission companies, GAIL and GSPL while as domestic production in the longer-term substitute liquefied natural gas (LNG) imports to that extent Petronet LNG should see a valuation derating. So from a stock perspective, it is beneficial to GAIL and GSPL while it impacts Petronet LNG.Latha: Petronet LNG has already suffered a goodish bit because of the fall in global gas prices. Does it become a buy now, has it fallen enough?A: We have an underperform rating on Petronet LNG and so essentially at the cost of reputation, this is an additional thing which has come out and Petronet LNG -- gas imports into India are roughly two-fifths and Petronet LNG is significant listed importer which is running at a near 100 percent utilisation. Once domestic gas production increases -- India is relatively gas rich -- in the longer-term this 100 percent utilisation is at the risk of declining and to that extent in fact Petronet LNG would get impacted by this.For entire discussion, watch accompanying video...