Mr. Avishek Datta - Research Analyst at Prabhudas Lilladher.
Q1FY23 operating profit for Indian Oil sector is expected to fall by 11% QoQ due to weak OMC performance, given high marketing losses of Rs15/11/litre for diesel and petrol. OMCs would report loss of Rs141.2bn, despite strong refining margins (GRMs up 2.7x QoQ to USD22/bbl) and inventory gains of Rs140bn. Upstream players will benefit from higher crude (+USD14/bbl QoQ). RIL's standalone earnings will grow 85% QoQ, given higher refining profitability and gas realization (+USD4/mmbtu QoQ). However, CGD earnings (-8%QoQ) may take a hit from lower volumes despite higher margins for GGAS and IGL/MGL.
RIL is our preferred pick for being a play on strong GRMs, rising gas earnings (volume + realization), rising telecom tariffs and post pandemic recovery of retail segment.
RIL: RIL's standalone will see improvement led by refining profitability. Gasoline/diesel spreads for Q1 were at USD34/42bbl (+USD17/24bbl QoQ). We factor in refining throughput (16.8MTPA, 17.3MT in Q4) and GRMs of USD30/bbl. RIL will also benefit from access to discounted Russian crude and sales to EU markets. Petrochemicals earnings will be hit by higher input cost pressure. Also, company will benefit from higher gas realisations of USD10/mmbtu (+USD4 QoQ).
Downstream-staring at high losses: We expect OMCs to report losses given pain in marketing earnings- Q1 marketing margins were at -Rs11/litre for petrol and Rs15/litre for diesel (vs loss of Rs2.5/litre in Q4 respectively). However, strong GRMs and high inventory gains will partly make up for weak marketing performance. Benchmark refining margins for Q1 were at US$22/bbl vs USD8/bbl in Q4. Given sharp upmove in crude oil and product prices, we calculate Q1 inventory gains at Rs140bn (companies have stopped sharing inventory gains/losses).
Upstream: Upstream companies will see operating earnings at Rs283.3bn, due to higher crude oil realization (+USD14/bbl QoQ) while PAT will be at Rs166bn (+58%QoQ). Production and sales volumes are likely to be muted. We have not factored any subsidy burden, but expect net realization of ~US$110/bbl.