Energy: 2QFY18E preview—strong quarter across the board - Kotak

We expect energy sector companies to report robust profits in 2QFY18-(1) OMCs are expected to benefit from higher refining margins, increase in 'implied' marketing margins and adventitious gains, (2) RIL's standalone performance will be boosted by strong refining and petchem profitability, (3) upstream PSUs will report higher EBITDA led by higher crude prices and growth in volumes and (4) gas sector companies will gain from higher volumes.

OMCs: higher refining and 'implied' marketing margins + adventitious gains to boost profits

We expect downstream PSUs to report sharply strong profits in 2QFY18, boosted by (1) higher underlying refining margins, (2) 50-60p/liter increase in 'implied' marketing margins on auto fuels, entirely attributed to timing difference between daily change in retail prices and fortnightly change in RTP and (3) adventitious gains due to uptick in crude prices, partially offset by weakness in petroleum volumes. We expect BPCL, HPCL and IOCL to report EPS of Rs14.9, Rs17.9 and Rs12.6 respectively, well above reported numbers in 1QFY18, which were impacted by significant adventitious/inventory losses and lower refining/marketing margins. Castrol is expected to report 7% yoy increase in net income to Rs1.5 bn (EPS of Rs3) led by 5% yoy growth in volumes and ~300 bps qoq improvement in EBITDA margins, assuming restoration of normalcy in distribution channels post GST implementation.

RIL: strong standalone profits; 'accounting' of Jio P&L should impact consolidated results

We expect RIL to report 14% qoq increase in standalone EBITDA to Rs132.6 bn and 13% qoq increase in net income to Rs92.2 bn (EPS of Rs14.2), driven by (1) expected increase in refining margins to US$13.2/bbl and (2) increase in petchem volumes. We model consolidated net income of Rs64.7 bn (EPS of Rs11) assuming Rs25.3 bn of loss from Jio; however, we would be watchful on 'accounting' of revenues and costs, which may depend on apportionment and capitalization. Incremental update on ramp-up schedule for downstream projects will be crucial.

Upstream: earnings boosted by higher crude prices and growth in volumes

We expect ONGC's net income to increase 4% qoq to Rs40.3 bn (EPS of Rs3.1) in 2QFY18 led by (1) higher crude realizations reflecting movement in global crude prices and (2) sequential increase in gas and oil volumes. OIL's EBITDA is similarly expected to increase by 3% qoq to Rs9.5 bn; however, net income may decline modestly by 2% qoq to Rs4.4 bn (EPS of Rs5.5) due to increase in DD&A and effective tax rate.

Gas sector: steady profits given modest rise in volumes and stable tariffs/margins

We expect GAIL to report 9% qoq increase in adjusted net income to Rs10 bn (EPS of Rs5.9) driven by increase in transmission and petchem volumes and higher other income, which will be partially offset by likely lower contribution from LPG and gas marketing segments. We expect PLNG to report 3% qoq increase in net income to Rs4.5 bn (EPS of Rs3), driven by modest increase in LNG off-take volumes. We expect IGL and MGL to report sequentially stable EPS at Rs12.9 (+1% qoq) and Rs12.9 (+3% qoq) respectively, driven by modest sequential increase in volumes and broadly steady unit EBITDA margins. We expect GSPL to report 11% qoq jump in EPS to Rs. 3, driven by 5% sequential increase in volumes.

Source : Equity Bulls

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