Indian oil firms delivered a subdued performance in the December quarter. Take for instance Reliance Industries Ltd’s (RIL’s) results. Despite the fact that it crossed the Rs8,000-crore mark in stand-alone net profit for the first time, the performance would have been sweeter if income from sources other than its main business had not played a key role in boosting profit.
Notably, while RIL’s gross refining margin (GRM) improved to $10.8 a barrel from $10.1 a barrel in the September quarter, the measure was lower than expected, considering that the benchmark Singapore refining margin had done much better sequentially.
GRM is the realization from turning every barrel of crude oil into finished products and is an important measure of profitability for refining firms.
RIL’s petrochemicals segment performed well but that couldn’t compensate for the disappointment from the refining business. However, investors have little to complain given that the stock has appreciated as much as 21% till 17 March since RIL announced it will start charging its customers in the telecom business. Further stock appreciation will be dependent on how the telecom venture fares in the days to come.
State-run refining and marketing firms—Bharat Petroleum Corp. Ltd (BPCL), Hindustan Petroleum Corp. Ltd (HPCL) and India Oil Corp. Ltd (IOCL)—delivered a decent performance. Reported GRMs improved sequentially. Inventory gains helped. According to analysts from Emkay Global Financial Services Ltd, core earnings, adjusted for inventory gains, came in at Rs12.7/12.1/7.6/ share for BPCL/HPCL/IOCL versus reported earnings per share of Rs15.7/15.7/8.4, respectively.
“After adjusting for one-offs, core earnings of IOCL and BPCL came in-line with our estimates but HPCL missed the mark on this metric as marketing margins disappointed,” an Emkay report said last month. However, broadly, reported earnings of all three firms were in-line, according to Emkay. These stocks have done well in the past two years, helped by diesel price deregulation and improvements in earnings. A further upside can come if refining margins improve further.
Meanwhile, stocks of upstream oil firms—Oil and Natural Gas Corp. Ltd (ONGC) and Oil India Ltd—have performed well in the past couple of months, thanks to firmer crude prices. However, if oil prices continue to remain range-bound, further appreciation in shares of ONGC and Oil India will be tough. Both firms saw their net price realization improve year-on-year as well as sequentially.