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Good Q3 for CGD players & OMCs (inventory gain vs loss)
Key trends in the oil & gas sector in Q3FY20 were: 1) Reuters’ Singapore gross refining margin (GRM) was at 69-quarter low and was down 61% YoY and 74% QoQ, 2) auto fuel net marketing margin was down 7% YoY and 34% QoQ, 3) crude and product inventory gain is likely due to rise in crude price from levels at the beginning of the quarter, 5) Indian gas price was down 5% YoY in INR terms, 6) LPG and kerosene subsidy at Rs47.8bn is estimated to be down 65% YoY. We estimate strong earnings growth for CGD players and GSPL and also for OMCs in Q3FY20. However, OMCs’ strong earnings growth would only be due to inventory gain in Q3FY20 vs large loss in Q3FY19.
* OMCs’ EPS to be up 68-240%: We estimate Q3FY20 EPS of HPCL, BPCL and IOC to be up 128% YoY, 68% YoY and 240% YoY respectively, driven by estimated crude and product inventory gain of Rs3.3-8.4bn vs loss of Rs33.3bn-107.4bn in Q3FY19. OMCs’ Q3FY20 EPS would be down 73-85% YoY if impact of crude and product inventory gain in Q3FY20 and loss in Q3FY19 is excluded.
* ONGC’s EPS to be down 39% YoY hit by fall in oil & gas price, volumes and higher DD&A: We estimate ONGC’s Q3FY20 EPS to be down 39% YoY hit by: 1) 4-6% YoY lower gas and oil price realisation at US$62.2/bbl, 2) 1.5% YoY fall in nominated fields’ oil sales volume and 10% YoY fall in gas sales volumes, and 3) 38% YoY higher DD&A at Rs48bn.
* GAIL’s EPS to be down 37% YoY: We estimate GAIL’s earnings to be down 37% YoY, hit by 39-55% YoY fall in gas marketing (on a high base) and LPG production EBITDA and petrochemicals EBITDA in the red. Petrochemicals have been hit by fall in realisation. Gas marketing EBITDA is assumed to rebound by 61% QoQ on a low base given the recovery in spot LNG prices QoQ, which will limit the trading loss on the untied up LNG volumes. However, downside risk is not ruled out.
* PLNG’s EPS to rise 17% YoY: Q3FY20 EPS is estimated to rise 17% YoY driven by 16% YoY rise in Dahej regas volumes, 9% YoY rise in regas charges at Dahej and lower tax/PBT of 25%. Pre-tax profit increase is estimated at 9% YoY.
* 20-36% YoY rise in EPS of GGL and GSPL: We estimate GGL’s Q3FY20 EPS to rise by 20% YoY driven by 40% YoY rise in volume to 9.2mmscmd (industrial volume by 57% YoY driven by Morbi) and lower tax/PBT of 25%. EBITDA margin is estimated to be down 22% YoY on a high base and 4% QoQ at Rs4.15/scm. GSPL’s EPS is estimated to rise by 36% YoY driven by 14% YoY rise in tariff, 7% YoY rise in volumes and lower tax/PBT of 25%.
* 25-33% YoY rise in EPS of MGL and IGL: We estimate IGL’s EPS to rise by 33% YoY driven by 13% YoY volume rise, 4% YoY rise in EBITDA margin and lower tax/PBT of 25%. MGL’s EPS is estimated to rise 25% YoY driven by 5% YoY rise in EBITDA margin as well as volume and lower tax/PBT of 25%.
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