Indian oil firms reported a mixed trend in their September quarter financial results. Industry gross refining margins (GRMs) were healthy during the quarter, a consequence of the supply disruption in the US Gulf Coast refineries owing to the impact of Hurricane Harvey. That means refining companies were anyway expected to perform well.

GRM is a key measure of profitability for a refining firm and is derived by deducting the crude oil cost it consumes from the total market value of the refined products it produces.

Reliance Industries Ltd (RIL), India’s most valuable company, reported a quarter-on-quarter and year-on-year improvement in its GRM at $12 a barrel. But many analysts had expected the company to perform even better. Even so, the focus in RIL’s numbers was the financial detail the company shared about its telecom subsidiary, Reliance Jio Infocomm Ltd.

RIL issued a profit and loss statement for its telecom operations effectively for the first time last quarter. Surprisingly, Jio’s reported revenue and operating profit were far higher than what the Street had anticipated. The biggest surprise was the reported average revenue per user (Arpu) of Rs156.40 per month, which included revenue from the previous quarter as well.

Results of state-run oil marketing companies (OMCs)—Bharat Petroleum Corp. Ltd (BPCL), Hindustan Petroleum Corp. Ltd (HPCL) and Indian Oil Corp. Ltd (IOCL)—were not that impressive. “OMCs reported in-line (BPCL) to below estimates (IOCL, HPCL) earnings in the 2QFY18, primarily on weaker than estimated GRMs," wrote analysts from Antique Stock Broking Ltd in a report on 16 November.

Favourable movement in crude/product prices meant that the reported GRMs for the September quarter contained an element of inventory gain versus inventory loss in the June quarter.

Accordingly, adjusted GRMs for all the three firms were lower, according to Antique’s calculations. The brokerage added that refiner shutdowns in case of IOCL and BPCL, and higher production of lower margin products such as fuel oil in case of HPCL, restricted OMCs’ ability to benefit from a sudden strength in the refining environment, after the tropical storms in the US.

Upstream oil firms—Oil and Natural Gas Corp. Ltd (ONGC) and Oil India Ltd—performed well on some parameters. Firm crude prices supported realizations of both these companies. The production performance was encouraging as well. The outlook on realizations for both companies looks bright, considering crude prices are flirting with $60 a barrel.

So far this fiscal year, out of the above companies, RIL shares have outperformed the most compared with the benchmark Sensex. News flow on its telecom venture will be a key variable to watch for in the coming days. Refining margins will be important to track for RIL and OMC shares. For ONGC and Oil India, watch crude prices.

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