The petroleum sector’s results for the quarter to December 2012 is expected to be lacklustre with a few exceptions, as margins in the refining as well as petrochemicals industries stagnated and the performance of state-run firms will hinge on the government’s ability to compensate their losses. The investment outlook for the sector could improve if the government implements a few key policy decisions, especially on pricing of products.
Refining margins — the differential between the cost of a barrel of crude oil and revenues from selling refined products — in the Singapore region, considered the benchmark for Indian shores, have dipped in the December quarter from the previous quarter.
Even the petrochemical business may see subdued margins. The market expects the industry to report under-recoveries ranging from . 39,000 crore to . 42,300 crore in the December quarter, compared with . 37,775 crore in the September quarter. However, subsidy sharing continues to remain ad hoc. The share of upstream companies is expected to go up in the total under-recovery bill. Brokerage Nirmal Bang says it expects upstream companies to bear 40% of under-recoveries in FY13E.
The results of Essar Oil and Cairn India are expected to be better than the rest of the industry. Essar Oil will benefit from the commissioning of its coal-fired power plant mid-November, while a weak rupee through the quarter bodes well for Cairn India. The sector, which under-performed the broader benchmarks in 2012, could see some vibrancy with the government perceived to be working on important policy decisions. The recommendations of the Rangarajan committee are beneficial for exploration and production companies, while the petroleum ministry’s proposal to raise diesel and kerosene prices gradually is good news for retailers. These decisions could improve the industry’s outlook going ahead.
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