Oil & Gas: Q1 preview — Earnings of OMCs likely to surge

We estimate strong earnings growth for OMCs but loss for ONGC, steep earnings fall for CGD players and more moderate earnings fall for GAIL, Petronet LNG (PLNG) and GSPL.

Key trends in the oil & gas sector in Q1FY21 were: (i) Dubai and Brent crude were down 53-54% y-o-y at $31-32/bbl; (ii) domestic gas price was at its 10-year low of $2.7/mmbtu; (iii) Reuters’ Singapore gross refining margin (GRM) was in the red at minus $0.9/bbl; (iv) auto fuel net marketing margin was at an all-time high of Rs 6.13/l; (v) auto fuel consumption was down 33% y-o-y and total product consumption down 26% y-o-y due to lockdown; and (vi) lockdown has meant gas consumption by city gas distribution (CGD) is down sharply while fall in gas transmission and LNG imports is more modest.

We estimate strong earnings growth for OMCs but loss for ONGC, steep earnings fall for CGD players and more moderate earnings fall for GAIL, Petronet LNG (PLNG) and GSPL.

51-298% y-o-y surge in OMCs’ EPS
We estimate 51%, 237% and 298% y-o-y surge in Q1FY21e EPS of IOC, BPCL and HPCL, respectively driven by: (i) record net marketing margin of Rs 6.13/l; (ii) product inventory gain of Rs 5.5-8.5 bn vs loss or smaller gain in Q1FY20; (iii) 2.1-9.3x y-o-y surge in GRM to $5.9-6.9/bbl for BPCL and HPCL; and (iv) decline in tax rate to 25.17% for IOC and HPCL. IOC’s GRM is estimated to be down 9% y-o-y at $4.3/bbl. OMC GRMs are estimated to be boosted by discounts of $3.4-3.6/bbl on crude vs Dubai and crude inventory gain of $0.6/bbl for BPCL and HPCL ($0.1/bbl loss for IOC).

ONGC to be in the red
We estimate ONGC to be in the red in Q1FY21e due to decline in realisation on oil by 54%, gas by 29% and value added products by 28-55% y-o-y.

GAIL’s Q1 EPS to be down 40% y-o-y
We estimate GAIL’s Q1FY21 EPS to be down 40% y-o-y, hit by 46-65% y-o-y fall in LPG production, and gas marketing Ebitda and petrochemical Ebitda in the red. Gas marketing Ebitda being lower than our estimate of Rs 3 bn, or in the red, is not ruled out. Gas transmission and marketing volumes are estimated to be down 10-12% y-o-y, and petrochemicals and LPG by 6-7%.

PLNG’s EPS to be down 40% y-o-y: PLNG’s Q1 recurring EPS is estimated to fall by 40% y-o-y, hit by 26% y-o-y fall in Dahej regas volumes (73% utilisation).

61-78% y-o-y fall in EPS of CGD players
We estimate Q1FY21e EPS of MGL, IGL and GGL being down by 61%, 64% and 78% y-o-y respectively hit by 59%, 63% and 56% y-o-y decline in volumes. Ebitda margin is estimated to be up 9% y-o-y for IGL, down 2% y-o-y for MGL and down 14% y-o-y for GGL. We estimate GSPL’s Q1 EPS to be down 18% y-o-y, hit by 15% y-o-y decline in gas transmission volumes.