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Monthly update and chart book
* Indian gas demand in October 2019 was flat yoy and fell by 1.3mmscmd mom to 153.2mmscmd. Sequentially, domestic gas consumption rose by 1.8mmscmd to 71.8mmscmd, driven by power and petchem sectors, while R-LNG was down 3.1mmscmd to 81.4mmscmd on the back of lower fertilizer, power and CGD offtake in that order but offset in part by refineries. R-LNG demand growth yoy stood at 1%, while domestic gas fell by 2%. For M7FY20, total gas consumption was up 4% with domestic gas/R-LNG growth at 0%/7%. RLNG demand growth was supported by power, CGD, refining and petchem sectors.
* OMCs’ auto-fuel pricing scenario has remained stable and we estimate current gross marketing margin on petrol/diesel at Rs3.4/2.6/ltr. Daily margins in QTD Q3FY20 has averaged Rs3.6/2.9/ltr, broadly the same as Q2. Fortnightly fixed RTP margins, however, are estimated to be down 8%/17% qoq at Rs3.6/2.7/ltr for petrol/diesel though the run-rate is above/largely in line with normative rates.
* Benchmark GRMs are currently hovering around near-zero to negative levels on a sharp decline in FO cracks from the upcoming IMO norms. Against this, middle-distillate cracks are also estimated to be at lower teens. While complex refiners such as RIL (with an ability to process FO-based crudes) are well-placed, PSU refiners are expected to see a negative impact from this dynamics. We estimate IOCL-BPCL’s GRMs to decline by USD0.3-0.6/bbl qoq in Q3FY20, while HPCL could see a USD1/bbl dip.
* Oil prices continue to hover around USD61-63/bbl as the weak global economic outlook and trade tensions were offset by expectations for deeper OPEC production cuts. Spot LNG prices have also remained range-bound at ~USD5.5/mmbtu on the back of a wellsupplied market. Regional LPG price in December was up 2% mom and 3% yoy at ~USD450/mt. Integrated petrochemical EBITDA margins are estimated to be down 8-9% qoq in Q3FY20 QTD.
* We estimate a slight reduction in Q3FY20 kerosene under-recovery qoq at Rs5.7/ltr, with the small monthly hikes continuing. For LPG, the DBT subsidy is expected to jump from ~Rs110/cy to ~Rs165/cy. Against Rs45-50bn of total under-recovery for Q2, we estimate Q3 to be at Rs70bn+. For M9FY20, the total under-recovery would be Rs200bn+. December saw petcoke prices being down 4-5% to USD70-75/mt.
* EAP: We prefer RIL, BPCL and GAIL, and are OW on them in our sector EAP.
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