Gas price cut credit negative for ONGC: Moody's

New Delhi: The 12.5 per cent cut in domestic natural gas price is credit negative for India's biggest producer ONGC as its earnings will fall by over Rs 1,400 crore, Moody's Investors Service said on Thursday.

On September 30, the government announced a 12.5 per cent reduction in domestic natural gas price to $3.23 per million British thermal units (mmBtu) from $3.69 per mmBtu (on a gross calorific value basis).

This is the first reduction in gas price in India since April 2017.

"The price decrease is credit negative for Oil and Natural Gas Corporation Ltd (ONGC) because its revenue and earnings from the gas business will fall by around Rs 1,460 crore.

The decline is equal to 0.3 per cent of the company's expected consolidated revenue and around 2 per cent of consolidated EBITDA for fiscal 2020, which ends on March 31, 2020," Moody's said in a note.

The decline in natural gas revenue and earnings will have a limited effect on ONGC's metrics for fiscal 2020 because its gas business is small compared with its total upstream business, it said.

"For the year ended March 2019, ONGC derived only about 17 per cent of its revenue (excluding downstream operations) from gas, with most of its revenue coming from the sale of crude oil (73 per cent)," Moody's said.