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OMCs to post losses, as government support on under-recoveries to
come with a lag
During 3QFY11, with a 14% QoQ rise in oil prices to USD86.8/bbl, under-recoveries on
diesel and cooking fuel prices have risen to INR149.3bn from INR10.5bn in 2Q. We estimate
cooking fuel and auto fuel (diesel) under-recoveries at INR91.4bn and INR57.8bn, respectively.
We have assumed 1/3rd of total under-recoveries by upstream companies and rest 2/3rd
remains in the books of OMCs’ pending compensation from government, leaving them into
losses for the Quarter. Despite better GRMs (+USD1.2/bbl), FX gains due to rupee appreciation
(+INR1.6/USD) and inventory gains due to rising oil price (+USD10/bbl), OMCs are expected
to post moderate losses in pending compensation of under-recoveries. Though we expect
compensation of losses in the coming quarters but clarity on sharing of losses is yet to emerge.
PSU upstream companies to post higher net realisations
ONGC and OIL are expected to witness a growth of 7% QoQ and 14% YoY in net realisations
to ~USD65/bbl, benefiting from sharp rise in oil prices. ONGC’s 3Q net profits are expected
to increase by 77% YoY and flat QoQ due to higher net realisations and rupee appreciation
by 3.6% QoQ. DD&A is expected to remain higher at INR41.6bn and a flattish QoQ oil &
gas production. OIL is expected to post a 33% YoY and 4% QoQ rise in net profits due to
2% QoQ increase in oil production.
RIL earnings expected to remain strong
We believe Reliance Industries to report a 29% YoY and 5% QoQ rise in net profits aided
by 52% YoY increase in refining GRMs at USD8.9/bbl. Refining EBIT of INR24.9bn is
expected to rise 14% QoQ and 81% YoY due to better GRMs. KG-D6 gas production
declined 6% QoQ to 54.7mmcmd (including MA) and MA oil production also fell 7% to
21Mbbl/d. PMT volumes recovered QoQ after closed platform resumed production at Panna-
Mukta by Oct end. Petchem earnings are expected to move up sharply by 14% QoQ due
to higher Petchem prices and margins.
GAIL earnings to shine supported by higher Petchem earnings
We expect GAIL to report a 30% YoY and 12% QoQ rise in net profits due to 26% QoQ rise
in Petchem EBIT. The rise in Petchem EBIT is aided by 5% QoQ increase in volumes and 11%
higher HDPE prices. Natural gas trading EBIT is expected to rise by 43% YoY due to levy of
marketing margins on APM gas effective June 2010. We estimate GAIL to share one-third of
cooking fuel losses and share subsidy amount of INR4.0bn.
PLNG’s volumes to drive earnings growth
We estimate PLNG’s earnings to rise 58% YoY and remain flat QoQ. We expect a 14% YoY
and 9% QoQ volume growth due to higher spot cargoes. PLNG has done ~five to six spot
cargoes, out of which three are done as re-gasification services.
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