Oil And Gas Q3 Results Preview — OMCs To Drive Sector Growth; GAIL Among Dolat Capital's Top Pick

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Dolat Capital Report

In Q3 oil and gas companies in our coverage universe exhibited significant growth, with Ebitda up +6% YoY/ 25% QoQ to Rs 920 billion and PAT up +4% YoY/ +29% QoQ to Rs 457 billion. Key growth drivers include-

1. Record integrated margins on auto fuel backed by Gross Marketing Margins of Rs11.5/litre and recovery in GRM that is anticipated to boost OMCs earnings; and

2. Reliance Industries Ltd.'s standalone (oil-to-chemical + exploration) Ebitda that’s expected to rise on the back of improved GRM with refineries are processing >50% dis. crude and increase in KG gas realization.

However, despite positive-growth drivers, OMCs faced under-recovery of Rs 94 billion/Rs 260 billion in Q3 FY25/nine months-FY25 respectively. Additionally, city gas distribution entities faced a policy uncertainty on administered price mechanism allocation with >30% cut expected to drag Ebitda by -41% YoY/-42% QoQ.

Among the CGDs Gujarat Gas would be the least impacted by the policy changes related to CNG. Our top picks are GAIL and Reliance Industries.

Positive Surprise: GAIL’s potential surprise on gas trading margins and Petronet LNG likely to book “Use or Pay” changes on volume shortfall by off-takers.

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