Oil & Gas Companies Q1FY21 Results Preview - A challenging quarter - HDFC Securities

Mr. Harshad Katkar & Mr. Nilesh Ghuge, Institutional Research Analyst, HDFC Securities.

Oil and Gas Q1FY21 Results Preview: A challenging quarter

Revenue for our coverage universe is likely to decline by ~50/45% YoY/QoQ owing to the lockdown and sharp correction in crude oil and gas prices. This has resulted in a decline in sales for OMCs, RIL, GAIL and CGD entities and lower realisation for upstream companies. We expect EBITDA for oil and gas companies under our coverage to decline by 30% YoY in 1Q owing to lower refining margins and per unit EBITDA margins for CGD companies.

OMCs: We expect core GRM of USD 1.2/1.2/1.3bbl for IOCL/HPCL/BPCL, down from USD 7.82.9/9.3/7.3. The 12-38% QoQ decline in refining crude throughput and 21-28% QoQ reduction in marketing sales volumes are likely to hit OMC earnings. However, it should be offset by inventory gains and a sequential jump in marketing margins. Average Brent price fell 38% QoQ to USD31.3/bbl in the quarter but closed almost USD20/bbl higher from Q4FY20. This led to USD0.5-3.5/bbl refining inventory gains. Marketing margins were up ~16% QoQ owing to higher margins for diesel/petrol.

Upstream players: We expect a sharp 34-36% QoQ decline in revenue for ONGC and OIL respectively, led by lower (1) crude realisations at INR 2,393/bbl, down 48/33% YoY/QoQ, (2) prices of VAPs, (3) 26% cut in domestic gas price realisation.

RIL: We expect RIL's EBITDA to decrease by 24% QoQ to INR 86.18bn owing to (1) 33% fall in GRM to USD 6.0/bbl versus USD8.9 in 4Q and (2) decline in petchem margins. We expect GRM of USD 7.0/9.2/bbl and Petchem EBITDA of USD 72.8/80.6/ton of production in FY21/22E.

CGD: Pan-India, the lockdown is likely to hurt the volume growth of CNG and industrial/commercial segment of CGD entities while having a positive impact on domestic PNG volumes during 1QFY21. Accordingly, we expect our coverage universe to register a volume contraction of ~40-67% QoQ in 1Q. We expect IGL/MGL/GGL to report 80/72/42% QoQ decline in EBITDA. We expect EBITDA per unit margin of INR 3.6/6.7/4.6/scm for IGL/MGL/GGL.

PLNG/GAIL/GSPL: We expect PLNG's revenue to fall by 48% QoQ to INR 45bn while expecting gross margin to fall by 23% QoQ to INR8.7bn, given (1) 26% fall in total volumes to 162tbtu and (2) ~31% fall in blended LNG prices to USD3.7/mmbtu. We expect GAIL to report 52% QoQ lower EBITDA owing to the fall in profitability for all segments. GSPL's average volume is expected decline by only 8% QoQ to 34mmscmd owing to strong demand from power plants. We estimate GSPL's EBITDA and PAT at INR3.5bn and INR2bn respectively.

Source : Equity Bulls

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