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Strong performance includes Reliance Industries, HPCL and BPCL

Expect real GDP growth at 5.5%-5.7% in 3QFY25

Reliance Industries is poised to deliver a robust performance in Q3FY25, supported by a favorable operating environment across its key segments. Refining margins are expected to improve sequentially, driven by strengthening product cracks. The digital services segment remains a growth driver, with ARPU likely to trend higher as tariff hikes gain traction. Additionally, the retail segment is anticipated to achieve and reach its record-high EBITDA of Q3FY24, benefiting from sustained expansion (higher private label sales) and strong consumer demand, thereby contributing to overall better profitability. These factors coupled with the correction in stock price reaffirm our positive outlook on Reliance as a top pick in the oil and gas sector.

Strong Q3FY25 OMCs earnings likely For Q3FY25, we estimate stronger profitability for OMCs particularly HPCL and BPCL (stronger on operational efficiency versus IOCL) with reported GRMs of USD 6/bbl and USD 6.5/bbl respectively, while gross marketing margins of HSD/MS at Rs/ltr of 8.9/10.6 and we build in some possible support from the government regarding the LPG subsidy burden. From an inventory perspective, the crude inventory levels at the end of the last quarter are flat compared to the average inventory of the current quarter. Consequently, we anticipate marginal inventory losses on refining for IOCL and no gain no loss for HPCL and BPCL while an adventitious gains in marketing operations during this span.

Top Losers: CGDs under pressure on APM supply reduction CGDs are likely to remain under pressure in Q3FY25 due to a series of domestic APM gas allocation cuts. Effective 16th Nov'24, CGDs faced further reductions of 18-20%, building on a similar 20% cut from 16th Oct'24, culminating in a cumulative 36% reduction over two months. This development forces CGDs to rely increasingly on higher-priced New Well Gas (NWG) priced ~USD9-10/mmbtu, necessitating CNG price hikes to maintain margins. Companies like IGL, MAHGL, and GUJGA were needed to raise CNG prices by ~Rs6/kg, to offset the rising costs, potentially phased over two quarters.

MAHGL took a price hike of Rs2/kg on 22nd Nov’24 followed by a Rs1/kg hike on 26th Dec’24 to Rs78/kg, averaging Q3 prices at Rs75.98/kg. IGL announced price hikes on 25th Nov’24 in the range of Rs1.5-4/kg in different locations except Delhi (contributes ~70% of CNG volumes) where the Q3 price averaged Rs75.09/kg. GUJGA took a price hike of Rs1.5/kg on 1st Dec’24 followed by another hike of the same magnitude effective from 1st Jan’25 to Rs79.26/kg, the Q3 average price in Ahmedabad stood at Rs76.77/kg. Despite the price hikes the EBITDA/scm for Q3 is expected to witness a hit of Rs2-2.6/scm across CGDs impacting margins.

Adding to the headwinds, PPAC data indicates a sharp decline in domestic gas consumption by the CGD due to a reduced domestic gas supply and the increasing share of costlier RLNG. While these factors weigh on CGD profitability, potential policy measures such as bringing natural gas under GST could alleviate some tax burdens, partially restoring competitiveness and aiding CNG adoption over the medium term.

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