for the profitability of the LPG and petrochemical segments. However, we expect Gail’s subsidies to decline also as diesel prices will likely be deregulated in the near term, which will result in lower overall subsidies. It would be illogical to ask Gail to bear under-recoveries when it begins to pay the full price of gas for internal consumption in its LPG and petrochemical segments.
In our view, overall under-recoveries will decline sufficiently enough for the government and upstream companies (OIL and ONGC) to bear the entire amount of under-recoveries. The government can exempt downstream companies and Gail, which will result in Gail’s profits increasing sharply. We note Gail’s FY10-14 EPS has been lower by R10-17 due to the subsidy burden; the figure was R10 for FY14.
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