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In 2QFY24, we expect RIL’s EBITDA to grow 5% QoQ due to strong GRMs, higher gas output and steady growth in Digital & Retail business. ONGC/Oil India’s 2QFY24 EBITDA may rise 1-6% QoQ on higher crude and gas sales volumes; however, net crude and gas realisation will be largely steady QoQ. OMCs’ earnings are likely to moderate from the record high in 1QFY24 due to the hit on marketing earnings but are likely to still be robust aided by strong GRM and inventory gains. IGL’s volume growth is expected to be muted due to the Delhi flood impact while MGL should see some moderation in margins from the record high in 1QFY24. GGas’s earnings are likely to recover QoQ on a low base due to normalisation of margins; however, volume could see a slight decline. We maintain BUY on RIL as we believe net debt concerns are overdone, and also because RIL has industry leading capabilities across businesses to drive robust 14-15% EPS CAGR over the next 3-5 years. We reiterate BUY on IGL due to robust pricing power and the steady volume growth story. We reiterate BUY on ONGC/Oil India given strong dividend play and also because CMP is discounting only ~USD 55/bbl net crude realisation. However, Brent crude > USD 80/bbl amidst an election-heavy period is a concern for OMCs though valuations at 0.8x P/B provide comfort

* RIL’s 2QFY24 EBITDA likely to grow 5% QoQ due to strong GRMs and higher gas output: RIL’s 2QFY24 EBITDA is likely to grow ~5% QoQ to INR 399bn aided by strong GRMs (offsetting weakness in petchem margins), strong growth in E&P earnings aided by rise in gas output, and steady growth in Digital & Retail business. Assumed: a) O2C EBITDA to grow 3.0% QoQ to INR 157bn in 2QFY24 due to strong GRM of ~USD 12.5/bbl (vs. implied GRM of ~USD 11/bbl in 1QFY24) driven by sharp jump in diesel cracks; this was partly offset by moderation in Russian crude discount, lower refining throughput due to maintenance shut-down and further weakness in petchem margin; b) E&P EBITDA could rise 20% QoQ to INR 48bn due to rise in KG D6 gas output (to ~27mmscmd in 2QFY24 vs. ~23mmscmd in 1QFY24) while ceiling price for HPHT gas is at USD 12.12/mmbtu for 1HFY24; c) Digital EBITDA is expected to rise by 3.0% QoQ to INR 141bn due to rise in ARPU to INR 183 (from INR 181 in 1QFY24) and increase in net subs by ~9mn QoQ; and d) Retail EBITDA is likely to grow by 6.7% QoQ to INR 55bn likely driven by rising store count and increase in footfalls.

* ONGC/Oil India’s 2QFY24 EBITDA to rise 1-6% QoQ on higher crude and gas sales volume; net crude and gas realisation to be largely steady QoQ: ONGC’s 2QFY24 EBITDA is expected to rise 1% QoQ as we expect overall crude sales volume to rise 1.8% QoQ (though we expect overall gas sales volume to be down 0.1% QoQ). Oil India’s 2QFY24 EBITDA is expected to rise 6% QoQ as we expect overall crude and gas sales volumes to rise 7.7% and 11.8% QoQ, respectively, aided by low base on account of NRL refinery shut-down in 1QFY24. ONGC and Oil India’s net crude realisation adjusted for windfall tax will continue to be capped at USD 73- 74/bbl with higher gross crude realisation (as Brent crude price averaged USD 86.7/bbl in 2QFY24 vs. USD 78.4/bbl in 1QFY24 — Exhibit 3) being offset by rise in windfall tax (~USD 11/bbl in 2QFY24 vs. USD 2.5/bbl in 1QFY24). ONGC and Oil India’s gas realisations are also expected to be steady QoQ with domestic APM gas realisation being capped at USD 6.5/mmbtu — Exhibit 11.

* OMCs’ earnings to moderate from record high in 1QFY24 due to hit on marketing earnings, but likely to still be robust aided by strong GRM and inventory gains: OMCs’ 2QFY24 earnings is expected to moderate from the record high in 1QFY24 due to the sharp impact on marketing segment earnings on account of higher crude price/product cracks; however, 2QFY24 earnings is still expected to be robust aided by strong GRMs and significant inventory gains. OMCs’ weighted average auto-fuel gross marketing margin has moderated to INR 3.3/ltr in 2QFY24 from the record high of +INR 8.8/ltr in 1QFY24 (vs. normalised margin of +INR 3.5/ltr) — Exhibit 7. However, OMCs’ reported GRM (including inventory gains) is likely to rise sharply to USD 14-19/bbl (HPCL USD 14.7/bbl, IOCL USD 18.6/bbl and BPCL USD 16.2/bbl) due to sharp increase in diesel cracks (partly offset by some moderation in Russia crude discount); this is after adding crude inventory gain of USD 3.0/bbl for HPCL and BPCL and USD 6.0/bbl for IOCL given USD 19.1/bbl QoQ rise in Brent crude price in Sep’23 vs. Jun’23. 

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