Subsidy to Hit Oil PSUs, Weak Re may Aid Pvt Cos

Under-recoveries have fallen 43% in Q1, but payment delays to affect PSU profits

This earnings season is unlikely to provide any excitement for the domestic petroleum industry. For PSU firms, the numbers will depend on the level of subsidy, while private companies should do well, thanks to aweak rupee. 
The industry is estimated to have been hit by under-recoveries, or sales below cost, of close to . 27,000 crore for the April-June 2013 quarter — a drop of nearly 43% against . 47,811 crore in the April-June 2012 quarter. Still, the PSUs will face the brunt of it because of delay in payments by the government. According to reports, the petroleum ministry has sought . 11,451 crore from the government, while upstream companies such as ONGC, Oil India and Gail will contribute . 14,906 crore. Downstream oil marketing companies such as Indian Oil, BPCL and HPCL are also expected to take a hit because of a weak local currency and the rising cost of crude oil. These three firms should post net losses, but lower compared to the past year. Upstream oil and gas producers ONGC, Oil India and Cairn should benefit because of the weak rupee. But the subsidy burden will limit gains for ONGC and Oil India. For Cairn India, Q1 profits may come under pressure, thanks to lower crude oil realisations and higher government share in the Rajasthan output. However, the key figure to watch out for will be output numbers, which is expected to improve. RIL is likely post better numbers compared to a year ago, thanks to higher gross refining margins and rise in margins in its petrochem business. Essar Oil may need to provide mark-to-market losses on its foreign currency loans, which will pull down its numbers.
The natural gas industry’s show will remain weak with availability of gas locally declining consistently. Gail’s volumes are expected to dip further, although that may not directly impact its bottom line due to take-or-pay arrangements. Lower LNG prices are expected to improve Petronet LNG’s volumes and in turn earnings. From the perspective of retail investors, there is nothing exciting to look forward to in the June 2013 quarter’s results season.