While the price hike is positive for oil companies, the government will be biggest beneficiary, in our view. We believe reduced under-recoveries would lead to a lower subsidy payout by the government almost to the same extent i.e Rs203bn.
ONGC and Oil India would benefit more from a reduced risk of a potentially higher upstream share. We factor in an upstream share of Rs668bn in FY13E vs. Rs550bn in FY12, in line with increased overall under-recoveries. This translates into a net oil price realizations in the range of US$53-58/bbl. While OMCs would gain from reduced gasoline under-recoveries (Rs51bn) and would be able to avoid higher interest costs, the net impact would be only marginally positive as their gains would be largely offset by lower payout from the upstream companies and the government.
