Oil and Gas - Q1FY22 Results Preview Report - Demand hurdle due to second wave - HDFC Securities

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

Revenue for the companies in our coverage universe is estimated to decline by ~2% QoQ, owing to the second wave of COVID-19 led state-wise lockdowns impacting demand. We expect lower marketing sales volumes for OMCs and lower gas volumes (QoQ) for CGD companies, offset by improvement in realisation for upstream companies. In turn, we expect EBITDA for oil and gas companies under our coverage to decline ~2% QoQ in Q1FY22.

OMCs: We expect core GRM of USD 1.4/1.4/2.0bbl for IOCL/HPCL/BPCL, down from USD 2.5/3.5/2.5bbl in Q4FY21, owing to negative cracks from naphtha, FO, LPG, offsetting increase in spreads of gasoline, ATF and gasoil. The second wave of COVID-19 has also impacted demand with (1) 4-36% QoQ decline in refining throughput due to lower demand and planned shutdown undertaken by HPCL and (2) marketing volumes falling 9% QoQ. The average Brent price is up 13% QoQ to USD 68.4/bbl in Q1. Marketing margins are up ~+10% QoQ, owing to improvement in margins for diesel and petrol.

RIL: We expect RIL's consolidated EBITDA to decrease by 5% QoQ to INR 223bn. Oil-to-chemicals (O2C) EBITDA/tonne of crude processed is estimated to increase 14% QoQ, owing to improvement in gasoil cracks by 9% QoQ and flat petchem margins. Albeit, refining throughput decline by 15% QoQ with an emergency shutdown in the SEZ refinery in June. We expect EBITDA to decrease by 59% QoQ to INR14.7bn from its retail segment. We have estimated 8.5mn subscriber addition in Q1 and ARPU of INR140, up 1.2% QoQ.

Upstream players: We expect 11% and 22% improvement in revenue of ONGC and OIL respectively, owing to (1) 13% QoQ jump in crude oil prices and (2) higher gas volumes for OIL.

CGD: The second wave of COVID-19 lockdown has put a dent to the revival seen till Q4FY21, resulting in a decline in CNG volumes QoQ. However, we expect per unit margin expansion QoQ, owing to (1) lower gas cost and (2) price hike. GGL's earnings are also expected to get hampered due to the lockdowns impacting demand in industrial segment. We expect our coverage universe to register a volume decline ~11-15% QoQ in Q1. We expect EBITDA per unit margin of INR 8.5/13.1/5.5/scm for IGL/MGL/GGL.

PLNG/GAIL/GSPL: We expect PLNG's revenue to increase 21% QoQ to INR92bn and gross margin to decrease by 4% QoQ to INR12.4bn, given 28% increase in raw material cost and 1% decrease in total volumes to 215tbtu. We expect GAIL to report 4% jump in EBITDA sequentially, owing to profitability in gas trading segment offsetting the flat transmission and lower volumes in petchem. GSPL's average volume is expected to improve by 4% QoQ to 35mmscmd due to stable volumes in power and fertilizer. We estimate GSPL's EBITDA at INR3.7bn and PAT at INR 2.3bn.

Source : Equity Bulls

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