Oil And Gas Q2 Results Preview - Sharp Improvement In OMCs A Major Driver For Sector: Dolat Capital

Dolat Capital Report

Our Oil and gas coverage shows strong growth on YoY in Q2 FY24, with operating profit likely to be up by 119% YoY to Rs 826 billion and net profit up 202% YoY to Rs 438 billion.

The majority of improvement is likely to be driven by a sharp turnaround in oil marketing companies, which should see a sharp recovery in gross refining margin with crude and product inventory gains, and marketing margins on auto fuel retailing in Q2.

We expect Reliance Industries Ltd.’s consolidated Ebitda to rise 31% YoY, driven by-

1. oil-to-chemical likely to be better on lower impact of export duty and higher gross refining margin;

2. exploration and production to benefit from KG basin gas price rise; and

3. Reliance Jio’s Ebitda to rise by 16% YoY with subscriber addition and rise in average revenue per user.

City gas distributors are expected to report mix set of earnings, compressed natural gas heavy companies like Indraprastha Gas Ltd. and Mahanagar Gas Ltd. to report earnings growth backed by a sharp cut down in administered price mechanism gas price which will lead to improvement in gross margins YoY.

Further, CNG volume growth would be backed by higher discounts on CNG compared to alternate fuels. Gujarat Gas Ltd. earnings will be impacted with the decline in the gross margins.

Gas utilities (GAIL India Ltd., Gujarat State Petronet Ltd.) are beneficiaries of peak gas demand in India. GAIL/Gujarat State Petronet's transmission volume would be at 120/33 million metric standard cubic metre per say but GAIL’s commodity segment is likely to disappoint.

India’s LNG demand is strong despite rising domestic gas production. We expect Petronet LNG Ltd.’s Dahej/Kochi terminal utilisation of 98%/15% in Q2 FY24.

Our top picks – Mahanagar Gas and Indraprastha Gas.

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