Oil & Gas Sector | Q3FY15E Results Preview (Cairn India, GAIL, Oil India & ONGC) -IndiaNivesh

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 In Q3FY15, Brent crude average price decreased 34% QoQ to US$ 77/bbl.
Upstream companies revenue would be supported by lower under recovery
and higher domestic gas prices. We estimate gross under-recoveries of Rs.150
bn and assume 50:50 sharing in Q3FY15 between the government and
upstream companies. However as per media reports the government is likely
to exempt ONGC and Oil India Ltd from payment of fuel subsidy during H2FY15
due to steep decline in global crude oil rates to around $50 per barrel. If this
happens, our assumption of net realization, revenue and profitability for
Q3FY15e/ FY15e would change substantially.
 We expect GAIL to report lower EBITDA QoQ due to (1) a decline in profitability
of LPG and the petchem segments, given lower product prices and (2)
accounting of Rs 5 bn subsidy, pertaining to the previous quarter.
 We expect lower profitability for Cairn due to (1) lower crude oil prices, (2)
lower production and (3) increase in government’s share of profit petroleum.
Cairn is likely to see the worst impact of fall in crude prices as it is a pure play
on crude price; however, the stock is trading at 0.7x book value which is at a
discount to its historical average of 1.2x book value. While the stock is likely
to remain under pressure in the near-term, these levels can be used for buying
for the medium to long term given the company has significant hydrocarbons
reserves, potential of further additions to these reserves and production ramp
up plans.
 Singapore GRM average was up 47% YoY and 31% QoQ at USD 6.3/bbl led by
higher diesel/jet fuel and FO cracks. However, sharp fall in crude and product
prices will lead to inventory losses and impact refinery profitability. Further,
OMCs will also report product inventory losses.
 We expect RIL to report lower profitability QoQ as robust Higher GRM will be
offset by inventory losses.

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