BackRefiners to benefit from better GRMs in March quarter
Financial results of Indian oil companies for March quarter are expected to be better than the largely uninspiring December quarter numbers
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Even as falling crude oil prices hurt price realizations of oil explorers, stronger refining margins will offer respite to refiners for the quarter ended 31 March. Moreover, relatively lower losses on selling fuel below cost are expected to help, too. Overall, financial results of Indian oil companies for March quarter are expected to be better than the largely uninspiring December quarter numbers.
As Religare Institutional Research says, Singapore gross refining margins (GRMs) improved to about $8.5 a barrel on account of refinery outages and sharper decline in crude oil prices than that of products. Higher refining margins should help March quarter financial performance of Reliance Industries Ltd (RIL) and state-run oil marketers—Bharat Petroleum Corp. Ltd (BPCL), Hindustan Petroleum Corp. Ltd (HPCL) and Indian Oil Corp. Ltd.
Analysts expect RIL to report higher profits on a sequential basis. RIL’s petrochemicals business should see the impact of sharp price declines. Apart from higher refining margins, oil retailers’ earnings are also expected to benefit from lower inventory losses and full impact of diesel price deregulation on marketing margins. Sentiment for marketers has been positive with shares outperforming the S&P BSE Oil and Gas index so far in 2015.
For state-run oil explorers, Oil and Natural Gas Corp. Ltd (ONGC) and Oil India Ltd (OIL), clarity on sharing subsidy remains paramount. For now, most analysts are assuming that the government will compensate for the losses of marketers in the March quarter and ONGC and OIL will not have to share the burden.
“If upstream is asked to pay for the entire ₹ 8,460 crore March quarter under-recoveries (ONGC share 86.8%), our estimate of ONGC’s profit after tax will decline to just ₹ 1,520 crore," wrote analysts from Nomura Research in a note last week. Investors would do well to track production figures as well for ONGC and OIL.
Meanwhile, softer crude oil prices would spoil the party for Cairn India Ltd, adversely impacting its price realizations and ultimately profits. Cairn India’s production numbers, too, are expected to be unexciting.
The writer doesn’t own shares in the above-mentioned companies.
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