 "OMCs, RIL key gainers in December quarter")
There seems to be no respite yet for crude oil prices with the Brent crude breaching its 12-year low levels of $34.18 and trading at $32.66 a barrel on Monday. This fall has added to the 43 per cent year-on-year and 14 per cent sequential fall in the black gold in the December 2015 quarter. The weak crude oil will put oil marketing companies (OMC) in a sweet spot, but it will be a pain point for upstream companies.
Lower crude oil prices will reduce the under-recovery burden of OMCs such as Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL) substantially in the quarter. Most analysts believe the government along with upstream companies will compensate this burden fully in the quarter. This will lead to continued easing of their interest costs. The OMCs’ gross refining margins (GRMs) as well as marketing margins will also witness an uptick in the quarter. While inventory losses are likely to be lower sequentially, they will put some pressure on earnings on a year-on-year basis, believe analysts. Surge in demand for auto fuels will also be a key positive in the quarter.
Reliance Industries (RIL) will continue to report higher GRMs thanks to a $1.5 a barrel improvement in the benchmark Singapore GRM to $8 a barrel. Analysts at Sharekhan expect RIL to earn a premium of around $3 a barrel over Singapore GRM to $11 per barrel in the quarter. Notably, this will be a seven-year high GRM for RIL. This, along with capacity additions, would largely offset the weak profitability of RIL’s petrochemicals business. While petrochemical prices fell in sync with crude oil price, this segment’s margins will also be impacted by stronger naptha prices. While production from RIL’s KG D6 block is expected to be flat sequentially, this segment’s earnings before interest and profit will be impacted by lower crude oil prices.
Government-owned upstream companies – Oil and Natural Gas Coporation (ONGC) and Oil India are likely to post weak numbers for the quarter. While their gross realisations will be impacted by weaker crude, lower subsidy burden will aid net realisations.
Analysts expect ONGC and Oil India’s net realisations to be $45 a barrel and $43 a barrel, respectively, in the quarter. The actual net realisations will vary with the actual subsidy burden of these companies. Sales volumes are likely to remain flattish for both these companies.
