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Research
Oil & Gas - Government acts to relieve the sector - Q2FY13 Results Preview - Centrum
Posted On : 2012-10-12 23:37:27( TIMEZONE : IST )
Crude which was trading at about US$95/bbl at the beginning of the quarter slowly moved up to over US$117/bbl and is now hovering around US$110/bbl. The movement was in tandem with global cues of positive news flows from ECB, the announcement of QE by the US and status quo in Iran. We do not foresee any catalyst for the up move in crude. GRMs on the contrary witnessed a sharp bounce back averaging at US$9.1/bbl in Q2 against US$6.7/bbl in Q1. Finally, the Indian government hiked diesel prices, reduced excise duty on petrol and put a limit to LPG cylinders for domestic consumption in mid-September thus relieving some stress on the sector. Still, under-recoveries are expected to be higher at about Rs463bn. Also, positive policy actions led to appreciation of the rupee from Rs55.6/US$ at the beginning of the quarter to Rs52.8/US$ by the end of the quarter. Rupee appreciation is likely to benefit the entire oil and gas space going ahead.
- Crude averages at US$110/bbl: Although crude witnessed significant volatility, it finally averaged US$110.1/bbl in Q2, marginally higher than US$109.0/bbl clocked in Q1.
- GRMs bounce back: Reuters Singapore Complex GRMs witnessed significant recovery during the quarter and averaged US$9.1/bbl in Q2 against US$6.7/bbl in Q1.
- Under-recoveries still higher at Rs462bn: Measures to curb under-recoveries were taken at the end of the quarter without much reduction in overall quantum of under-recoveries which are still expected to be high at about Rs463bn for Q2. We have considered upstream sharing at 33.5% of the total under-recoveries and government compensating the rest (partial compensation for the under-recoveries incurred in Q1) to the OMCs. Thus OMCs are expected to report profits in Q2.
- Government action, rupee appreciation to contain under-recoveries: Government action and subsequent appreciation of rupee are likely to help in containing under-recoveries for the sector in FY13E. We are thus estimating Rs1,566bn and Rs872bn in under-recoveries for FY13E and FY14E respectively.
