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India Oil and Gas
1QFY12 earnings preview: no excitement anticipated
In the absence of adequate government budget provisions,
we expect oil marketing companies (OMC) to report poor
earnings, but upstream to gain if it shares one third of
under-recovery
We expect private sector companies to post only modest
sequential growth
We maintain our ratings and target prices, and do not expect
1QFY12 results to move the stocks in any meaningful way
We expect HPCL and BPCL to report losses and marginal profit for IOC. Despite
robust refining margins during the quarter with the Singapore Complex refining margin at
USD8.6/bbl, 16% higher sequentially and 130% higher y-o-y, OMCs are likely to report
poor earnings as the government may limit its subsidy payout to what it has budgeted, ie,
INR200bn, which is only 47% of the total under-recovery of INR425bn for the quarter
incurred by OMC on the sale of diesel, LPG and kerosene below international prices. We
anticipate one third of total under-recovery to be passed on to the government-owned
upstream companies. Consequently, we expect Oil India to report robust 60% sequential
growth. We believe GAIL will report a sequentially lower number owing to a higher
subsidy and lower petchem volume.
Private oil companies to show profit growth during 1QFY12. We expect RIL to report
net profit of INR56bn, which reflects modest sequential growth of 4%. We assume a gross
refining margin (GRM) of USD10.2/bbl (versus USD9.2/bbl in 4QFY11) reflecting a
premium of USD1.6/bbl on Singapore GRM. We expect the lower gas production from
D6 and poorer petrochemical margins to limit sequential growth. We believe Cairn will
report marginal growth in net profit as its production remains constant at 125kbpd, but the
benefit of higher oil prices is nullified by lower entitlement interest.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Oil and Gas
1QFY12 earnings preview: no excitement anticipated
In the absence of adequate government budget provisions,
we expect oil marketing companies (OMC) to report poor
earnings, but upstream to gain if it shares one third of
under-recovery
We expect private sector companies to post only modest
sequential growth
We maintain our ratings and target prices, and do not expect
1QFY12 results to move the stocks in any meaningful way
We expect HPCL and BPCL to report losses and marginal profit for IOC. Despite
robust refining margins during the quarter with the Singapore Complex refining margin at
USD8.6/bbl, 16% higher sequentially and 130% higher y-o-y, OMCs are likely to report
poor earnings as the government may limit its subsidy payout to what it has budgeted, ie,
INR200bn, which is only 47% of the total under-recovery of INR425bn for the quarter
incurred by OMC on the sale of diesel, LPG and kerosene below international prices. We
anticipate one third of total under-recovery to be passed on to the government-owned
upstream companies. Consequently, we expect Oil India to report robust 60% sequential
growth. We believe GAIL will report a sequentially lower number owing to a higher
subsidy and lower petchem volume.
Private oil companies to show profit growth during 1QFY12. We expect RIL to report
net profit of INR56bn, which reflects modest sequential growth of 4%. We assume a gross
refining margin (GRM) of USD10.2/bbl (versus USD9.2/bbl in 4QFY11) reflecting a
premium of USD1.6/bbl on Singapore GRM. We expect the lower gas production from
D6 and poorer petrochemical margins to limit sequential growth. We believe Cairn will
report marginal growth in net profit as its production remains constant at 125kbpd, but the
benefit of higher oil prices is nullified by lower entitlement interest.
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