Home >market >mark-to-market >Oil and gas: A good quarter for the refiners

In the March quarter, while Indian refining and oil marketing companies did well, oil producers delivered a poor show.

Reliance Industries Ltd (RIL) saw a good quarter, reporting a better-than-expected gross refining margin (GRM) of $11.5 per barrel. The refining business contributed as much as 64% of RIL’s total stand-alone earnings before interest and tax (Ebit). GRM is realization from turning every barrel of crude oil into finished products. It an important measure of profitability for refiners.

RIL’s petrochemicals business, accounting for 35% of its Ebit, delivered a decent performance as well. Lower volumes were partially set off by higher product prices in the segment.

The oil and gas business continued to be a drag, owing to a weak price environment in the domestic market and a declining production trend. However, RIL’s stand-alone profit after tax at Rs8,151 crore was broadly in line with Street expectations.

The RIL stock has done well on the bourses since the company said in February that it will start charging its telecom subscribers from this fiscal year. The stock is likely to take meaningful cues from the performance of the telecom business in the coming days. Investors would do well to keep a tab on the refining margins as well.

Meanwhile, state-run refining and oil marketing firms—Bharat Petroleum Corp. Ltd (BPCL), Hindustan Petroleum Corp. Ltd (HPCL) and Indian Oil Corp. Ltd (IOCL)— performed well during the March quarter.

IOCL and HPCL’s earnings were aided by a) inventory gains to the tune of Rs920 crore and Rs700 crore, respectively, and b) a strong GRM of $8.95 a barrel and $8 a barrel, respectively, pointed out Antique Stock Broking Ltd in a report on 5 June.

While inventory gains of about $2 a barrel aided IOCL’s GRM, HPCL’s GRM gained from a lower crude cost as a few cargoes procured at lower cost were processed during the quarter, added the brokerage. These shares have done well in the past one year and that may cap sharp appreciation over the near-to-medium term.

On the other hand, the results of state-run oil producers—Oil and Natural Gas Corp. Ltd (ONGC) and Oil India Ltd—were adversely affected on account of certain one-off factors comprising royalty and provisions relating to employee pay revision. Stocks of both the companies have underperformed the benchmark Sensex so far in this calendar year.

Unfortunately, given the muted outlook on crude oil prices in the interim, there is little to suggest a reversal in the trend of share performance for ONGC and Oil India.

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