Oil&Gas cos earnings preview for Q3FY13: Kotak

Kotak Securities has come with its December'12 quarterly earning estimates for oil and gas sector. According to research firm, the natural gas supply in India was lower due to delay in ramp-up of the natural gas production from KG-D6 by RIL. This will not only negatively impact the performance of RIL but also impact gas-utility companies such as GSPL, GAIL, Gujarat Gas. Refining companies are expected to show subdued gross refining margins but part of it will be negated by weak rupee.

In Q3FY13, Brent crude oil price (global benchmark) touched a high of USD $117.6/ bbls but settled lower at USD $ 112.84/ bbls. Due to lack of key triggers globally, crude traded in a narrow range of USD$ 116-118/bbls. On the other hand, rupee remained volatile and traded in a wide range of INR 51.75-55.73/ USD $. It averaged at ~ INR54.15/$ and closed at INR 55.0/ USD$ (4.04% QoQ depreciation).

On the domestic front, sector favorable news flows from the media kept the sector in limelight. To begin with, Rangarajan Committee report on production sharing contract (for E&P blocks) was tabled, suggesting moving to revenue sharing (prospectively) from current cost recovery, thus reducing continuous cost monitoring by the government. Further, the Cabinet is considering a proposal raising diesel price by Rs1/lit./month thus wiping out under-recoveries on diesel in the next ten months. The oil ministry proposed key reforms, though implementation needs to be closely watched.

Refiners: In Q3FY13, Singapore refining margins averaged ~USD $ 6.43/bbls after touching a high of USD $9.66/ bbls mainly on account of weak global demand and pressure on gasoline-crude, diesel-crude & FO-crude cracks. We expect refining companies to show subdued gross refining margins but part of it will be negated by weak rupee.

The natural gas supply in India was lower due to delay in ramp-up of the natural gas production from KG-D6 by RIL. This will not only negatively impact the performance of RIL but also impact gas-utility companies such as GSPL, GAIL, Gujarat Gas, etc. However, part of the gas volume loss was compensated by higher import of LNG by PLNG.

Cairn India: We expect, CIL to report strong top line growth both on QoQ and YoY basis on account of volume and realization growth. Cairn India is a private exploration company so it will reap full benefits of rising crude oil prices. We also expect Company to report forex gain.

Petronet LNG (PLNG): We expect the Company to show strong volume growth on sequential basis mainly on account of higher gas demand and lower KG-D6 gas production. The Company filled the supply-demand gap by importing higher LNG. We expect higher re-gasification tariffs.

Castrol India: We expect the Company to show volume pressure both in the automotive segment and industrial segment. The rupee depreciation will impact the Company's margins negatively.

Indraprastha Gas (IGL): We expect IGL to show decent volume growth YoY basis mainly due to conversion of vehicles to CNG. On sequential basis, the gas volume performance and margins are expected to be better due to higher demand and price hikes under taken in Sep'12. In Jan'13, the Company has further hiked CNG prices by 4% to ring-fence its margins. The 4% revision in CNG price results in increase of Rs 1.55/kg to Rs. 39.90 per kg in the consumer price of CNG in Delhi and Rs 1.80/kg to Rs 45.10 per kg in Noida, Greater Noida and Ghaziabad. However, the full benefit of the same will be reflected in Q4FY13.

MRPL: We expect MRPL to show decent performance on account of higher capacity and better margins on account of improved yields.

GSPL India: We expect GSPL to report de-growth in profits. However, there may be improvement in volumes in Q3FY13. PAT is expected to be under-pressure. The Company may get benefit of take-or-pay clause.

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