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Sector Name: Oil & Gas, Petrochemicals
1Q subsidy estimated at Rs432bn (up 38% QoQ and 115% YoY): Press
reports indicate 1Q FY12 subsidy shared by R&M companies, upstream and
the government is Rs432bn. 1Q diesel subsidy is Rs277bn while the balance
Rs155bn is LPG and kerosene subsidy.
Sharing assumed at government 58% and upstream 33%: Upstream
companies had to bear 38.7% of FY11 subsidy. We have assumed that
upstream companies would bear 33% (Rs144bn) of 1Q subsidy. We have
assumed that the government will bear 58% of the subsidy (Rs250bn). Thus
R&M companies are assumed to bear Rs38bn of diesel, LPG and kerosene
subsidy in 1Q FY12. R&M companies will, however, also have to bear the
entire subsidy on petrol, which we estimate at over Rs30bn in 1Q
Brent at US$117/bbl and Indian market crude Bonny light at US$120/bbl:
Brent price at US$116.8/bbl is up 49% YoY and 11% QoQ in 1Q FY12.
Bonny Light, which is marker crude for several Indian upstream companies,
at US$119.7/bbl is up 50% YoY in 1Q FY12 from US$80.1/bbl in 1Q FY11.
Bonny Light is also up 11% QoQ vis-à-vis US$107.5/bbl in 4Q FY11.
Singapore complex GRM up 15% QoQ and 132% YoY to US$8.5/bbl: 1Q
FY12 Reuters’ Singapore complex GRM is up 15% QoQ at US$8.5/bbl from
US$7.4/bbl in 4Q FY11. 1Q FY12 Singapore GRM is also 132% YoY higher
from US$3.7/bbl in 1Q FY11. Singapore GRM in 1Q FY12 is at the highest
level in 16 quarters.
Rupee stronger 2%YoY and 1% QoQ: The rupee at Rs44.7 in 1Q FY12
has appreciated by 2% YoY from Rs45.7 in 1Q FY11 and by 1% QoQ from
Rs45.3 in 4Q FY11. A stronger rupee means lower refining and
petrochemical margin in rupee terms. It would help in reducing subsidy on
US dollar denominated oil/product prices
Expectations for the quarter by company
Reliance Industries (RIL)
16% YoY rise in net profit driven mainly by higher refining & petrochemical
EBIT: We estimate RIL’s 1Q FY12E net profit to be 16% YoY higher at Rs56.2bn.
We expect EBITDA to rise by 13% YoY to Rs106bn and EBIT to rise by 21% YoY
to Rs73.1bn. We expect refining EBIT to be up 72% YoY at Rs35bn driven by
38% YoY (10% QoQ) jump in RIL’s GRM to US$10.1/bbl vis-à-vis US$7.3/bbl in
1Q FY11. RIL’s 1Q theoretical GRM calculated by us works out to US$10.1-
10.7/bbl. We expect petrochemical EBIT to be up 12% YoY but down 12% QoQ.
We expect E&P EBIT to be 23% YoY lower at Rs14.9bn hit by 24% YoY lower oil
& gas volumes
Oil India (OIL)
Higher gas & net oil price to drive 62% YoY rise in 1Q profit: We expect OIL’s
1Q profit to be 62% YoY higher at Rs8.1bn driven by 33% YoY higher oil and gas
volumes and prices. OIL’s oil & gas production was hit by problems at the biggest
user refinery in 1Q FY11 and thus the volume rise is on a low base. We expect
OIL’s 1Q oil price net of subsidy to be up 21% YoY and 14% QoQ higher at
US$60.2/bbl. Gas price will be higher YoY as its gas price was hiked in 1Q FY11
only from June 2010. We are assuming OIL’s 1Q subsidy at Rs17.6bn out of
upstream subsidy of Rs144bn
R&M companies (BPCL and HPCL)
Loss in 1Q FY11: As discussed we have assumed R&M companies will bear
Rs38bn of the diesel and LPG-kerosene subsidy in 1Q. However, they will also
have to bear the entire petrol subsidy of over Rs30bn. We have assumed refining
margin of US$5.0/bbl for HPCL and BPCL (up 34%-40% YoY). However, given
the subsidy burden, BPCL and HPCL are expected to post losses of Rs27.4-
30.6/share.
Gas utilities
GAIL
13% YoY higher profit driven by rise in petrochemicals and LPG segment
EBITDA : We expect GAIL’s 1Q FY12 net profit to be 13% YoY higher at
Rs10.0bn. The rise would be driven by 38% YoY jump in petrochemicals EBITDA
and 9% YoY rise in gas transmission EBITDA. LPG production EBITDA before
adjusting for subsidy is expected to be 30% YoY higher but that net of subsidy is
21% YoY lower. We are assuming GAIL’s 1Q subsidy at Rs7.1bn
GSPL
10% YoY higher profit driven by 43% YoY lower depreciation: We expect
GSPL’s 1Q FY12 net profit to be 10% YoY higher at Rs1.2bn. 1Q EBITDA is
expected to be down 3% YoY but profit is expected to rise 43% YoY due to lower
depreciation. Depreciation will be 43% YoY lower due to cut in depreciation rate
on pipelines from 8.33% to 3.17%, which was implemented only in 4Q FY11 but
was effective from April 2010. We are assuming flat gas volumes and 4% YoY
higher gas transmission tariff in 1Q.
Petronet LNG
Earnings up 86% YoY driven by 31% YoY higher regas volumes and 11%
higher regas charge: We expect Petronet LNG’s 1Q net profit to be 86% YoY
higher at Rs2.1bn vs. 1Q FY11 profit of Rs1.1bn. The jump in 4Q profit is mainly
driven by 31% YoY higher regas volumes at 125.0TBTU (2.5mmt) and 11% YoY
higher regas charge.
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