Oil & Gas Sector Update : Weaker earnings YoY across sector by Elara Capital
For FY26E, we have a positive view on oil marketing companies (OMCs) in the Oil & Gas sector, as weakening of international crude oil prices to <USD 60/bbl would add ~INR 900bn cumulative EBITDA to OMCs in FY26E over that at USD 75/bbl crude oil price. As per our estimates, OMCs’ FY26E EPS would be positively impacted by 93-123% at current crude oil prices – Bharat Petroleum (BPCL IN) by INR 37 or 123%, Hindustan Petroleum (HPCL IN) by INR 64 or 120% and Indian Oil (IOCL IN) by INR 17 or 93%. So, our top picks in the sector are BPCL and HPCL. However, earnings of upstream companies (ONGC, Oil India and GAIL), city gas distribution plays (IGL, MGL and Gujarat Gas) and refiners (RIL, MRPL and CPCL) would be hit with falling crude oil prices and refining/petchem margin.
Oil & Gas – Q4E EBITDA to drop 10% YoY on lower GRM and gas marketing earnings: Expect EBITDA for Elara Oil & Gas universe – 14 companies – to fall 10%/5% YoY/QoQ in Q4FY25E, led by a YoY drop in GRM, LPG losses for OMCs and lower gas marketing margin for GAIL, though partly offset by higher gasoline/diesel margin YoY. CGDs may see a sharp YoY fall in EBITDA/scm margin due to lower domestic gas allocation and higher LNG costs. Reliance Industries’ (RIL IN) Q4FY25E GRM may be at USD 12.2/bbl versus USD 14.0/bbl estimated in Q4FY24.
OMCs’ earnings to fall on weaker GRM and LPG losses: Expect GRMs for PSU refiners – BPCL, Chennai Petroleum (MRL IN), HPCL, IOCL and MRPL – to average USD 5.4/bbl in Q4FY25E from USD 5.0/bbl in Q3FY25 and USD 9.4/bbl in Q4FY24. Expect average crude inventory gain in Q4FY25E at USD 0.3/bbl versus USD 1.5/bbl loss in Q3FY25. Retail diesel margin is likely at INR 6.0/liter versus INR 4.5/liter YoY and INR 9.3/liter QoQ. Retail gasoline margin is expected at INR 9.5/liter versus INR 8.1/liter YoY and INR 12.8/liter QoQ. A QoQ dip in gasoline/diesel margin would be due to weakening of INR
Upstream PSUs – Mixed profitability trend YoY: We expect ONGC’s (ONGC IN) EBITDA to grow 8% YoY in Q4FY25E amid lower statutory levies. Crude oil realization for ONGC is estimated at USD 73.5/bbl, flat YoY and up 1% QoQ. Oil India’s (OINL) EBITDA is likely to fall 4% YoY due to reduced offtake. OINL’s crude oil production is likely to be flat YoY, while gas production is set to grow 2% YoY.
CGDs – Total gas sales volume to rise 0-13% YoY: We expect EBITDA to fall a sharp 24% YoY for Gujarat Gas (GUJGA IN) due to higher gas costs with flat volume YoY and EBITDA/scm margin at INR 5.2/scm (down 23% YoY). EBITDA for Indraprastha Gas (IGL IN) and Mahanagar Gas (MAHGL IN) is set to decline 29% YoY and 15% YoY, respectively, led by a 34% and 23% drop in EBITDA/scm margin, though partly offset by a 9% and 13% volume growth, respectively
GAIL’s EBITDA to fall 35% YoY and RIL’s to grow 4% YoY: GAIL’s EBITDA may fall 35% YoY in Q4E, due to a decline in gas marketing margin and higher costs impact in LPG and Liquid Hydrocarbon, though partly offset by rising transmission earnings.
Gujarat State Petronet’s (GUJS IN) EBITDA may dip 45% YoY on likely 12% YoY drop in transmission volume and tariff cut in Q1FY25. We expect Petronet LNG (PLNG IN) to post an EBITDA drop of 4% YoY as LNG import volume is likely to fall 11%. RIL’s consolidated EBITDA may grow 4% YoY, due to an EBITDA growth of 17% each in retail and digital services (telecom), though partly offset by a 25% drop in standalone EBITDA (refining, petchem and E&P).
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