PL Sector Report - Oil & Gas - Apr-Jun’23 Earnings Preview – Operationally strong results likely
Prabhudas Lilladher Pvt Ltd
Oil & Gas - Avishek Datta - Research Analyst, Prabhudas Lilladher Pvt Ltd
Apr-Jun’23 Earnings Preview – Operationally strong results likely
Indian Oil sector’s operating profit is expected to increase by 17.7% QoQ to Rs832bn given OMC’s robust performance (EBIDTA at ~Rs383bn) led by improving marketing margins (blended margin of Rs9/ltr vs Rs3 in Q4) despite lower refining spreads. Upstream companies like ONGC and OIL India are expected to maintain production volumes and net crude realization of ~US$76-77bbl, but gas realization will be lower at USD6.5/mmbtu (Q4: $8.6). IGL/MGL will see QoQ earnings growth from lower input prices, while GGAS may suffer due to competition from propane despite softening input prices. We expect RIL’s O2C segment to report muted result due to lower refining, partly compensated by higher petchem margins. We build in steady telecom performance (+2.9%QoQ revenue growth) as we build in 1.5%QoQ ARPU growth while retail revenue growth will be steady. HPCL, BPCL remain are our preferred result pick.
§ RIL results expected to be lower QoQ due to decline in refining spreads. We estimate refining throughput of 17.0MTPA, (17.1MT in Q4). Petchem profitability will improve QoQ, due to demand recovery post China reopening. We expect Jio to show steady performance (2.9%QoQ revenue growth and 1.5% QoQ ARPU hike), while retail segment profitability should be resilient.
§ GAIL: We expect sharp improvement in EBITDA at Rs22.9bn (Q4: Rs3.1bn) given drop in spot LNG prices to USD11/mmbtu (Q4: $15) which will aid gas transmission and petchem volumes. We also factor gas trading EBIDTA of Rs3bn vs Rs1.5bn in Q4.
§ OMCs: Marketing margin recovery to drive PAT to Rs242.7bn: We expect OMCs results to be operationally better owing to recovery in marketing gains of blended margins at Rs9/ltr vs Rs3/ltr in Q4, despite lower GRMs. Benchmark Singapore margins were lower at USD4.1/bbl vs USD8.2/bbl in Q4FY23, due to drop in diesel and ATF spreads by ~USD12/bbl. Lower refining spreads will be partly compensated by continued sourcing of discounted Russian crude. So while refining profits will be lower, recovery in marketing margins will drive Q1 PAT to Rs242.7bn from Rs211.2bn in Q4 (+14.9%QoQ).
§ Upstream: Companies will improve Q1 PAT to Rs121bn vs Rs108bn in Q4FY23 (+12.3% QoQ), due to steady net crude price realization post windfall taxes and flat gas prices ($8.57/mmbtu). Net crude oil realization will likely be flat at ~USD76. Production and sales volumes are likely to be flat QoQ.
§ CGDs: IGL/MGL to benefit from lower gas prices: CGD players like IGL/MGL will benefit from drop in domestic gas prices to USD6.5/mmbtu from USD8.6 in Q4. However, for GGAS we expect gas sales volumes to recover to 9.7mmscmd (Q4: 8.9), but margins will be under pressure due to competition from propane.