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Overall, the Oil & Gas sector's core performance in Q3FY25 is expected to be a mixed bag, OMCs and standalone refiners to witness sequential improvement in reported refining performance on stronger core GRMs despite marginal inventory losses, and stronger marketing margins with marginal adventitious gains adding to the profitability. Reliance (RIL) would improve sequentially with O2C on better GRMs, JIO increased ARPU and Retail segment reaching its peak EBITDA. Gas utilities volumes decline on reduced CGDs APM allocation and rising gas costs which would result in a deterioration in volumes as well as spreads for CGDs.

Macros: The price of Brent crude for the quarter averaged USD74/bbl down USD4.8 QoQ and USD8.8 YoY. The benchmark Singapore GRM at USD5/bbl, was USD1.4/bbl higher than the previous quarter with an uptick in key product cracks – gasoline flat, gasoil/ATF up by USD/bbl of 1.8/1.5. The gross marketing margins for OMCs improved sharply on sequential basis due to a fall in crude prices. The spot LNG prices averaged USD13.9/mmbtu versus 13 in the previous quarter.

Upstream

The Upstream companies would report subdued operating profits given net crude realization decline. ONGC’s oil production to decrease by 4.7% YoY but gas production to be flat while Oil India’s oil production is expected to be flat on YoY basis and gas production to rise by 0.5% YoY. We expect a decline in net crude realizations for both the companies due to a fall in crude prices which gas remains stable.

Refineries & OMCs

The gross marketing margins for MS (petrol) and HSD (diesel) during the quarter averaged Rs10.6 and Rs8.9 a litre respectively. India’s petroleum products consumption is expected to be up by 4.4% YoY. In terms of refining, the Singapore GRM had a sharp increase sequentially and Indian refiners to continue to report a premium over the benchmark on a higher share of higher cracks product - HSD. We expect companies to report improved GRMs on a stronger core and marginal inventory losses while marketing adventitious gains to add strength. Overall OMCs reported performance would be stronger QoQ with a possible aid by the government on sharing LPG subsidy burden. However, higher forex losses are also expected to affect the profitability.

Gas Utilities

For the Gas Utilities pack, PLNG volumes would decline on both YoY and QoQ basis with lower Dahej utilization (~95.5%) and a rise in spot LNG prices, a possible inventory and trading gains to add to the earnings. GAIL’s performance is expected to be weaker on lower gas transmission volumes but supported by stable gas trading margins. Petchem capacity utilization stronger and stable realizations and better margins, while LPG and LHC to show an improvement. GSPL could report flat volumes YoY and a decline in volumes QoQ on a fall in demand from the fertilizer and other sector, while lower tariffs to continue impact the earnings.

City Gas Distribution (CGDs)

City Gas Distribution (CGDs) volumes would decline QoQ for MAHGL and IGL while increase for GUJGA. In terms of volume growth, GUJGA could witness a higher increase, but declining spreads to make things worse. All three leading companies took a price increase on CNG improving realizations which still would not be able to support the spreads on rising gas costs. GUJGA impacted from CNG, despite improved Morbi volumes and price hikes in Propane. IGL & MAHGL to report marginal decline in volumes and steep decline in spreads, which would result in poor profitability.

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