But subsidy burden could offset any such gains for upstream public sector oil majors
The July-September 2013 quarter was volatile when it came to the rupee and crude oil prices – two crucial factors that impact the sector most. Volatility kept demand low, putting pressure on margins. However, benefits of rupee depreciation and higher interest rates should prop up the numbers of private sector players such as Reliance Industries and Cairn India.
The rupee weakened almost 12% during the quarter ending at 62.5 against the dollar after moving between 59 and 69, while international crude oil prices rose 6.3% to $109.8 per barrel on Syria tensions. This has caused the under-recoveries for the public sector retailers to jump, which is estimated between . 34,600 and . 37,500 crore, compared with . 25,579 crore in the April-June 2013 quarter. This means IndianOil, BPCL and HPCL could end up with huge losses if the government limits its compensation.
The performance of upstream majors such as ONGC and Oil India will depend on how much subsidy burden they are made to bear. If the burden remains at $56 per barrel in line with the previous quarter, ONGC and Oil India are likely to benefit from the rupee depreciation and post better profits.
When it comes to refining companies, the gross refining margins (GRMS) — the difference between product prices and cost of crude oil needed to produce them — were under pressure, but the rupee depreciation and inventory gains should compensate for the same.
“In Q2FY14, Singapore complex GRMs were under pressure and declined by 17% quarter-on-quarter, averaging $5.4 per barrel,” mentioned a report from Kotak Securities. The GRMs for Reliance Industries – a keenly watched number — is estimated around $7.8 per barrel for the quarter, down from $8.4 posted in the preceding quarter. However, this should translate into a higher rupee figure due to the currency depreciation. The natural gas industry is likely to continue its subdued performance, thanks to dwindling domestic production and rupee depreciation leading to high cost of imports. GAIL’s volumes are likely to drop to 98 mmscmd during the July-September ’13 quarter from 99 mmscmd of the last quarter. Better realisations in petrochemicals and LPG businesses could offset this, provided the subsidy share remains at . 700 crore.
Petronet LNG’s volumes are likely to take a dip in the July-September quarter at its Dahej plant as prices spurt, while commissioning of its Kochi unit would add to its interest and depreciation costs. Both these factors would result in a drop in its profits. In contrast, city gas distribution companies Indraprastha Gas and Gujarat Gas are likely to show some resilience due to their recent price rises.
On this background, the clear winner for the quarter is likely to be Cairn India, which will show healthy profit growth, thanks to higher production, benefit from the rupee depreciation and higher oil prices. Similarly, its surplus cash will generate better returns because of higher prevailing interest rates during the quarter.
The rupee weakened almost 12% during the quarter ending at 62.5 against the dollar after moving between 59 and 69, while international crude oil prices rose 6.3% to $109.8 per barrel on Syria tensions. This has caused the under-recoveries for the public sector retailers to jump, which is estimated between . 34,600 and . 37,500 crore, compared with . 25,579 crore in the April-June 2013 quarter. This means IndianOil, BPCL and HPCL could end up with huge losses if the government limits its compensation.
The performance of upstream majors such as ONGC and Oil India will depend on how much subsidy burden they are made to bear. If the burden remains at $56 per barrel in line with the previous quarter, ONGC and Oil India are likely to benefit from the rupee depreciation and post better profits.
When it comes to refining companies, the gross refining margins (GRMS) — the difference between product prices and cost of crude oil needed to produce them — were under pressure, but the rupee depreciation and inventory gains should compensate for the same.
“In Q2FY14, Singapore complex GRMs were under pressure and declined by 17% quarter-on-quarter, averaging $5.4 per barrel,” mentioned a report from Kotak Securities. The GRMs for Reliance Industries – a keenly watched number — is estimated around $7.8 per barrel for the quarter, down from $8.4 posted in the preceding quarter. However, this should translate into a higher rupee figure due to the currency depreciation. The natural gas industry is likely to continue its subdued performance, thanks to dwindling domestic production and rupee depreciation leading to high cost of imports. GAIL’s volumes are likely to drop to 98 mmscmd during the July-September ’13 quarter from 99 mmscmd of the last quarter. Better realisations in petrochemicals and LPG businesses could offset this, provided the subsidy share remains at . 700 crore.
Petronet LNG’s volumes are likely to take a dip in the July-September quarter at its Dahej plant as prices spurt, while commissioning of its Kochi unit would add to its interest and depreciation costs. Both these factors would result in a drop in its profits. In contrast, city gas distribution companies Indraprastha Gas and Gujarat Gas are likely to show some resilience due to their recent price rises.
On this background, the clear winner for the quarter is likely to be Cairn India, which will show healthy profit growth, thanks to higher production, benefit from the rupee depreciation and higher oil prices. Similarly, its surplus cash will generate better returns because of higher prevailing interest rates during the quarter.
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