'Buy' GAIL India, Gujarat Gas, Gujarat State Petronet As Refining Sees Mixed Trend, Says Nirmal Bang

Nirmal Bang Report

Key Points

• We prefer gas sector stocks with gas major GAIL India Ltd. as our top pick ('Buy' - target price Rs 139). Other ‘Buys’ include Gujarat Gas Ltd. ('Buy' - target price Rs 528), Gujarat State Petronet Ltd. ('Buy' - target price Rs 423) and Mahanagar Gas Ltd. ('Buy' - target price Rs 1,253).

• The gas sector still enjoys YoY growth in volume, spurred by increased supply of cheaper administered price mechanism gas for compressed natural gas/domestic piped natural gas, higher share of domestic gas versus liquefied natural gas – which has seen a decline in imports. We remain cautious on oil marketing companies.

• The average diesel spreads have again surged above $20/barrel of oil in July-August 2023 after the steep correction seen in Q4 FY23/Q1 FY24 (from multi-year highs seen in H1 FY23). This has further spiked in August 2023- to-date from $29.5/bbl to $35.8/bbl.

• The average retail fuel margin has crashed to (-) Rs 3.7/litre in August-23 first fortnight versus ~(+) Rs 7.2/litre in Q1 FY24 and ~(+) Rs 2.5-3/litre in Q4 FY23 – petrol/diesel retail margin per litre is estimated at (-)Rs 1.4/(-) Rs 4.5. The hit on earnings has been mitigated due to month-on-month decline of 5.3%/12.9% in motor spirit/high speed diesel consumption in July-23 and month-on-month decline of 5.2%/9.5% in the first fortnight of Aug-23.

• The Q2 to-date-FY24 petrol/diesel/jet fuel spread per bbl is at $15.2/$22.6/$20.9 versus $15.5/$15.1/$15 in Q1 FY24. More striking is the HSFO spread, which has increased (turned less negative) to (-)$4.4/bbl in Q2-td-FY24 versus (-) $9.8/bbl in Q1 FY24 and (-) $19.5/bbl in Q2 FY23. As a result, we have seen the Singapore complex gross refining margin (on Dubai crude) touching $8.8/bbl in Q2 FY24 versus $4.7/bbl/$6.9/bbl in Q1 FY24/Q2 FY23. Indicative Indian GRM (which varies depending on crude and product mix) has touched $5/bbl in Q2 FY24 versus $2.9/bbl in Q1 FY24 and $10.9/bbl in Q2 FY23. Based on the latest spreads, the Indian GRM has surged further to $10.2/bbl.

Click on the attachment to read the full report: 

DISCLAIMER

This report is authored by an external party. BQ Prime does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of BQ Prime.

Users have no license to copy, modify, or distribute the content without permission of the Original Owner.