A few Indian oil companies performed well for the three months ended December. The others were lacklustre.

Take the state-run upstream oil companies—Oil and Natural Gas Corp. Ltd (ONGC) and Oil India Ltd for instance. ONGC, the larger of the two, reported a weak set of numbers while Oil India’s results were slightly better than expectations. ONGC’s total crude oil production declined compared to the September quarter while gas production increased a bit. Higher write-offs during the quarter suppressed ONGC’s profits. On the other hand, Oil India’s crude production increased sequentially but gas production declined; year-on-year profit growth was robust compared to that of ONGC’s. Both companies saw improvement in price realisations thanks to stronger crude oil prices.

As for the state-run refining and marketing companies, Bharat Petroleum Corp. Ltd (BPCL) has had another weak quarter compared to peers, said analysts at Nomura Financial Advisory and Securities (India) Pvt. Ltd. Indian Oil Corp. Ltd (IOC) and Hindustan Petroleum Corp. Ltd (HPCL) had surprised both on refining/marketing margins and inventory gains, said Nomura in a report on 10 February.

The outcome—for the first nine months of FY18, earnings per share (EPS) of Rs26.7 for BPCL is 72% of Nomura’s expected fiscal 2018 standalone EPS versus 85-86% for HPCL/ IOC.

The ongoing stabilization at BPCL’s Kochi refinery weighed on performance. The good news is that the coming quarters are expected to be better, owing to the refinery’s stabilization.

Meanwhile, Reliance Industries Ltd’s (RIL) consolidated profit growth for the December quarter was driven by its telecom unit, Reliance Jio Infocomm Ltd’s performance. The Telecom Regulatory Authority of India’s (Trai) 57% cut in interconnection usage charges (IUC) boosted Jio’s operating profit last quarter. That apart, the petrochemicals division too performed well. However, the refining business suffered a bit, as refining margins were under pressure last quarter.

What of the stocks?

Firm oil prices should support realisations of oil producing companies and ONGC’s and Oil India’s shares will take cues from that. What about oil subsidy? According to analysts from Jefferies India Pvt. Ltd, the government’s FY18-19E subsidy provisions (about Rs21,500 crore) are clearly inadequate but this has also frequently changed through the year in the past. “Indeed, the rapid normalization of auto fuel margins and the regular rise in kerosene prices in 2018 give us hope that the government is keen to avoid spiralling under-recoveries as crude prices rise," wrote Jefferies analysts in a report on 9 February.

The performance of the telecom business will be crucial for the RIL stock. Stronger refining margins will augur well for RIL as well as BPCL, HPCL and IOC.

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