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Oil and Gas : IIFL: Q3 FY11 Sector Preview
Gross under recoveries are expected to be higher in Q3 FY11 following rise in crude oil prices. Underrecoveries
on petrol will not contribute to the total gross under recoveries as the prices have been deregulated.
However, losses on diesel, LPG and SKO have increased considerably causing total under
recoveries to increase. Uncertainty over subsidy sharing pattern continues with the government yet to
decide on a particular formula. For our estimates, we have assumed 33% sharing by upstream
companies and remaining to be borne by OMCs.
Refining margins have been higher on a sequential basis on account of improvement in gasoline
spreads, which will result in better performance of RIL’s refining segment to be neutralized by lower
throughput on account of maintenance shutdown. Petrochemical spreads are likely to be lower
considering the out performance of feedstock prices vis-à-vis product prices. Crude oil production from
MA-1 field and gas production from KG-D6 field are likely to be lower on a sequential basis.
Higher production from Rajasthan field would lead to robust results for Cairn India and will translate
into higher total production for ONGC. APM gas price hike will further improve ONGC’s performance.
GAIL should witness strong set of numbers on yoy basis as a result of higher transmission volumes on
yoy basis.
Our top picks in the sector are Reliance and ONGC.
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