Oil refining companies are expected to report inventory gains for the June quarter, riding on a $10 rise in oil prices between April and June, 2018. However, they could book significant forex losses from an average 4 per cent fall in the rupee’s value to Rs 67 during the first quarter.
The core gross refining margin (GRM) of public sector refiners are expected to be weaker as the Singapore GRM declined to $6 per barrel quarter-on-quarter (QoQ), according to a results preview by brokerage Emkay Global.
However, another brokerage HDFC Securities said higher utilisation of complex refineries—at Paradeep, Kochi and Jamnagar-- will arrest the sharp fall in GRMs for Inidan Oil (IOC), Bharat Petroleum (BPCL) and Reliance Industries (RIL). It said the weakness in margins of gasoline, naphtha and LPG will be offset by steady margins for middle distillates.
HDFC Securities also said inventory gains due to higher crude oil prices could offset the negative impact of lower marketing margins and lower GRMs for oil marketing companies (OMCs).
Emkay Global said dated Brent prices rose 11 per cent QoQ to average at $75/bbl in Q1FY19, as strong Opec-Russian output cut compliance was accompanied by worsening Venezuelan scenario and US withdrawing from the Iranian nuclear deal.
It said OMCs diesel-petrol marketing margins plunged 30-40 per cent QoQ, the as Karnataka election and higher oil prices put pressure on retail pricing.
About the upstream players like ONGC and Oil India, the brokerage said it estimates gross under-recoveries to decline by 12 per cent QoQ to Rs 7,200 crore due to lower international LPG prices. “It is not clear if subsidy burden would be imposed on PSU upstream companies, as being the first quarter, budgeted subsidy provision was there. However, $75/bbl oil realisation is difficult to assume. Companies have not received any indications as yet from the Government of India. Nevertheless, upstream earnings would get a fillip from 6 per cent rise in administered price mechanism (APM) gas prices and rupee depreciation, partially offset by lower other income QoQ. ONGC/Oil India’s crude oil output is expected to be range-bound QoQ. But, gas output for ONGC would be up 3-4 per cent while that of OIL will be down 2-3 per cent,” it said, adding, “We have assumed nil under-recovery burden for OMCs. We expect BPCL-HPCL’s earnings before interest, taxes, depreciation and amortisation (Ebitda) to fall QoQ, though for IOC, it would rise due to heavy refining inventory gain.”
Emkay said it estimates RIL’s petchem earnings to grow by 10 per cent QoQ due to steady margins and higher volumes though the same will be offset by 8 per cent decline in refining from weaker GRM at $10.2/bbl. “We estimate Ebitda to be up by 2 per cent QoQ though PAT would decline 2-3 per cent due to higher interest cost (from forex loss) and lower other income. In consolidated business, Retail/Jio earnings are expected to grow by 7-8 per cent QoQ with 28m subscription addition in the latter though average revenue per user (ARPU) is expected to weaken. Consolidated earnings is expected to be flat at Rs 9,500 crore in Q1.”
On the gas sector, the report said the average liquefied natural gas (LNG) price was down 6 per cent QoQ due to seasonality. “Countrywide gas supply is expected to be down 2 per cent QoQ due to lower LNG volumes from Dabhol shutdown in May-June. Hence, we expect slight decline in GAIL’s pipeline volumes although GSPL volume is likely to remain steady. Marketing volume would also see similar trajectory though margins are expected to be better QoQ. We estimate 9 per cent QoQ EBITDA growth for GSPL though profit after tax would fall by 11 per cent due to Gujarat Gas debt. Petronet LNG’s earning is expected to grow by 6-9 per cent due to some improvement in Dahej volumes and Kochi regas charge escalation. In city gas distributors, we expect Indraprastha Gas/Gujarat Gas volumes to grow 10 percent/ 9 per cent YoY with a slight 10-15 paise QoQ increase in Ebitda/standard cubic metre (scm).
HDFC Securities said it expects ONGC and OIL to report 41 per cent and 47 per cent YoY increase in Ebitda driven by, increase in crude oil price, weaker rupee and increase in domestic gas price., excluding subsidy sharing by upstream companies.
It expects RIL GRM of $10.8/bbl in Q1 from $11/bbl in 4QFY18, and standalone PAT to increase by 6.1 per cent YoY to
Rs 8,696 crore. Impact from lower GRM will be mitigated by higher petchem volumes and weaker rupee, it said.