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High oil prices, inventory gains and volume recovery to drive earnings

* Improvement in commodity prices and demand continued in Q4FY21, driven by the postCovid recovery in the global economy. GRMs inched up but due to election-led constraints in auto fuel pricing and spike in spot LNG prices, relevant marketing margins were hit.

* Average Brent price rose 36% qoq to USD60.7/bbl in Q4, closing over USD10/bbl higher at USD62.4/bbl. Average rupee appreciated 1% but closed flat. We estimate OMCs to see sizeable inventory gains and decent volumes, though core margins would be weak.

* Upstream earnings would be driven by high crude realizations with no change in domestic gas prices. GAIL would benefit from higher LPG-petchem prices and improved US LNG margins. PLNG and GSPL should see a volume decline qoq due to a spike in spot LNG.

* IGL is expected to report yoy volume growth, while Gujarat Gas may see margin pressure due to spot. We estimate improved O2C and retail performance for RIL. The lube sector would see strong growth yoy due to the base effect. We are OW on BPCL, HPCL and IGL.

OMCs to see inventory gains, core to be weaker; higher oil prices to drive upstream: OMCs are expected to see around flat marketing volumes yoy, strong refinery utilization and sizeable refining/marketing inventory gains. Against this, core GRMs would remain muted due to higher oil prices and Middle East OSPs at a premium. Auto fuel margins were also down 35-45% qoq at ~Rs3/ltr, denting overall marketing margins. Due to higher inventory gains, we expect reported PAT of IOCL to increase qoq to Rs63bn, while that of BPCL/HPCL would fall to Rs21bn/Rs15bn. We estimate Q4 PAT of ONGC/Oil India at Rs30bn/Rs8bn, driven by oil prices and dividend income, though partly offset by higher expenditure. Overall production is expected to be down 7%/up 3% yoy (day unadjusted).

Gas sector volumes near pre-Covid levels, spot LNG spike to impact PLNG and GSPL: We estimate GAIL’s standalone PAT to rise 8% qoq to Rs16.1bn (ETR 25% assumed vs. 20% in Q3), driven by higher LPG-petchem prices and better US LNG margins. We expect 2-3% increase in transmission-marketing volumes qoq and 110% petchem utilization. GSPL’s volumes/PAT should fall 6%/16% qoq to 37.0mmscmd/Rs2.1bn due to Jan’21 spot LNG hit and higher opex. We estimate IGL’s PAT to be flat qoq at Rs3.3bn, assuming a 6% decline in EBITDA/scm at Rs8.2. Volumes are expected to be up 7% each yoy and qoq. Gujarat Gas’ PAT would drop 35% qoq to Rs2.6bn on a sharp 32% decline in EBITDA/scm to Rs4.0, partly offset by 3% volume growth to 11.8mmscmd. For PLNG, we estimate PAT to decline 23% qoq to Rs6.7bn, with Dahej/Kochi utilization at 88%/21% and spot margin of USD1.5/mmbtu

RIL earnings to improve qoq on better O2C-retail; GOLI volumes to rise 30% yoy due to base effect: We estimate RIL’s consolidated EBITDA to rise 7% qoq to Rs230bn on the back of a recovery in retail and O2C income (driven by margins). Retail EBITDA is estimated at Rs26bn, up 3% yoy/13% qoq (adjusted). For Jio, we expect ~8mn net subscriber additions and Rs141.9 ARPU due to IUC adjustment. We estimate consolidated APAT post JPL-RRVL minority interest to rise 8% qoq to Rs143bn. We assume an effective tax rate of 3%. For GOLI, we expect a 30% yoy rise in volumes due to the base effect (Mar’20), while EBITDA/ltr should decline 5% qoq to Rs23.9 amid high base oil prices. We expect EBITDA/PAT of Rs782mn/ Rs602mn. ONGC, Oil India and GAIL would lead the pack in terms of earnings recovery in Q4

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