Oil And Gas Q2 Earnings Preview - To Be A Mixed Quarter: Dolat Capital

Dolat Capital Report

In Q2 oil and gas sector in our coverage universe showed a sharp decline YoY, with Ebitda likely down -26% YoY/-1% QoQ to Rs 794 billion and PAT down -38% YoY, but up +5% QoQ to Rs 368 billion. Key factors impacting are-

1. Reliance Industries’ oil-to-chemical and oil marketing company Ebitda is expected to be weaker due to - sharp fall in gross refining margin, crude inventory loss, subdued petrochemical margins along with discounts declined on Russian crude and additional to OMCs losses on sale of domestic LPG cylinder (Rs 9.5/kg);

2. In case of city gas distributions, the APM gas allocation for priority segment slumped to 67% vs. 90% last year; currently Gujarat Gas is facing challenges at Morbi as the Ceramic industries slowdown has impacted the PNG (I) volume;

3. Among Gas utilities Gujarat State Petronet may take big earnings hit due to slash in tariffs, but Petronet LNG's Dahej /Kochi terminal asset utilization will touch 98%/25%.

Our top picks are Mahanagar Gas, GAIL and Indraprastha Gas.

Positive Surprise: GAIL’s potential surprise on gas trading margins and Indian Oil’s delay in accounting inventory loss may lead to better-than-expected gross refining margin.

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