Q2FY21 Preview: A recovery quarter, B2B gas to see near-normal volumes and steady earnings
* Q2 saw a gradual demand recovery as the nationwide lockdown started easing; however, except for B2B gas and petcem, other segments remained below pre-Covid levels. Broadly, oil volumes were down 10%+, CNG 20-30%, lubes 5-10% and refineries 15-30%.
* Average Brent price rose 36% qoq to USD42.7/bbl in Q2 but closed flat vs. Q1-end. We expect some inventory gains as there were virtually no gains for refiners in Q1. Auto-fuel marketing margins fell to Rs4-5/ltr qoq. The rupee ended stronger, implying forex gains.
* GSPL/PLNG is expected to report pre-Covid volumes, while GAIL should be near normal too. GAIL’s gas marketing margin outlook is volatile as demand recovery is offset by lower alternate fuel costing. CGD margins should jump qoq on volume rebound.
* RIL should witness an uptick in petchem volumes with partial recovery in retail and Jio seeing some growth qoq. OMC earnings, though down qoq, should still imply healthy FY21 numbers. Gujarat Gas, GSPL and PLNG should record strong Q2 earnings.
OMCs’ earnings to cool down qoq on lower marketing margins, upstream to improve: We estimate IOCL/BPCL/HPCL to report standalone PAT of Rs27bn/18bn/17bn in Q2. BPCLHPCL’s earnings should fall by 13-40% qoq on lower margins though IOCL is estimated to see a 40% jump as Q1 had refining inventory losses that are expected to reverse. We build in USD2-2.2/bbl reported GRM, assuming some inventory gains although core GRMs could be weak. IOCL-BPCL’s refining volumes should be down 15-25% yoy, while HPCL’s should be lower by 10% (100%+ utilization). Domestic marketing volume decline is expected at ~11% yoy. Sizeable forex gains would also be there. Upstream earnings should recover with ONGC/Oil India’s PAT estimated at Rs33bn/851mn. ONGC’s earnings should be supported by lower opex and dividend income. Total crude/gas production is expected to be down 2%/5% yoy for ONGC and 10%/19% for OIL, with the latter affected by the Baghjan blowout. We assume older ETR for BPCL and ONGC as they are yet to move into newer rate.
Gas sector, sans CNG, should see volumes recovering to near normal: We estimate GAIL’s standalone PAT to increase qoq to Rs9.2bn on 16-17% higher gas volumes and better petchem-LPG earnings. We expect petchem utilization at 93%, with higher PE and lower LNG prices providing support. However, the increase in Henry Hub and the decline in trailing oillinked LNG prices imply weak trading margins which we assume will remain negative in Q2. GSPL’s volumes/PAT should jump 17%/47 qoq to 39mmscmd/Rs2.9bn. We estimate IGL/GGL’s PAT to grow qoq to Rs1.9bn/2.3bn as volumes-margins improve. We expect IGL’s total volumes to be down 20% yoy with EBITDA/scm of Rs5.9, while GGL’s volumes should be stable at 9mmscmd (down 4% yoy) with EBITDA/scm of Rs5.0. For PLNG, we estimate PAT to rise 33% qoq to Rs6.9bn with Dahej/Kochi utilization at 101%/17% and spot LNG marketing margin of USD1.1/mmbtu.
RIL’s EBITDA to improve qoq on partial petchem and retail recovery; GOLI volumes to be down 2% yoy with margin improvement qoq: We estimate RIL’s consolidated EBITDA to rise 8% qoq to Rs182bn on the back of partial recovery in petchem and retail, and growth in Jio. Refining should be weak on lower volumes and rangebound GRM of USD6.5/bbl. Petchem should be driven by volume normalization qoq while retail EBITDA is estimated at Rs16.4bn, up 51% qoq (down 29% yoy). For Jio, we expect ~11mn net subscriber additions and 2% ARPU growth qoq at Rs143. We estimate consolidated APAT post JPL minority interest to be up 5% qoq to Rs87bn. Other income should be higher while interest should be lower qoq due to JPL fund raise. For GOLI, we expect a 2% yoy volume decline, while EBITDA/ltr should jump 82% qoq to Rs26.5. We expect Rs714mn of EBITDA and Rs533mn of PAT. Lubricant industry volumes as a whole is expected to be down 5-10% yoy.
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