PL Sector Report - Oil & Gas - Jul-Sep'23 Earnings Preview - Operationally weak results likely

Oil & Gas – Swarnendu Bhushan – Co-Head Of Research, Prabhudas Lilladher Pvt Ltd

Jul-Sep’23 Earnings Preview – Operationally weak results likely

Indian Oil & Gas sector’s operating profit is expected to decline by 5.5% QoQ to Rs1,085bn given OMC’s weak marketing margins and flat CGD performance. Upstream companies like ONGC and OIL India are expected to maintain production volumes and net crude realization of ~US$75/bbl post windfall tax. Similarly, gas realization to remain unchanged QoQ at US$6.5/mmBtu. IGL/MGL/GUJGA earnings to remain flat with muted volumes and no significant price hikes/cuts except Gujarat Gas. We expect RIL’s O2C segment to report higher operating profits with higher refining margins, partly offsetted by weak petchem spreads. We build in steady telecom performance (+3.4%QoQ revenue growth) as we build in 1.9%QoQ ARPU growth while retail revenue growth will be steady. ONGC, GAIL, GSPL and Gujarat Gas remain our top picks.

♦ RIL results expected to be higher QoQ with higher refining margins. We estimate refining throughput of 17.0mmtpa. Petchem profitability will decline QoQ, however refining margins are likely to improve amid rise in benchmark GRMs. We expect Jio to show steady performance (3.4%QoQ revenue growth and 1.9% QoQ ARPU hike), while retail segment profitability should be resilient.

♦ GAIL: GAIL’s performance is expected to improve with increase in transmission, trading and petchem volumes. Transmission volumes are likely to reach 118 mmscmd, while trading volumes are estimated at 103 mmscmd. We anticipate petchem volumes to reach 202KT in Q2.

♦ OMCs: Operating profits to decline owing to fall in marketing margins: We expect OMCs results to be operationally weaker owing to sharp fall in marketing gains of petrol and diesel due to rise in benchmark prices. However, Benchmark Singapore refining margins during the quarter have strengthened to US$9.6/bbl vs US$3.8/bbl QoQ, on the back of rising diesel cracks. Recovery in refining margins will drive Q2 PAT to Rs197bn from Rs305bn in Q1 (-25.2%QoQ)

♦ Upstream: Companies will improve Q2 PAT to Rs122bn vs Rs113bn in Q4FY23 (+7.6% QoQ), with steady net crude price realization post windfall taxes and capped domestic gas prices ($6.5/mmBtu). Net crude oil realization will likely be flat at ~US$75/bbl.

♦ CGDs: CGD PAT to remain flat QoQ at Rs10 bn, amid muted volume growth and marginal increase in procurement costs. Gujarat Gas’ realization is likely to come in higher QoQ due to price hikes undertaken by the company.

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