Thanks to benign macro (oil down, robust consumption), OMCs are set to register the best quarter in the fiscal (Q4FY23), while upstream should also gain from higher gas prices. RIL should report steady 11% YoY growth, on the back of scale-up in JIO and Retail; CGDs should report a mixed quarter: IGL, MGL reporting 11-28% PAT growth, while GGAS 38% fall (aggressive price cuts) — to regain volumes in FY24.
Benign macro:
Macro environment in Q4 was relatively benign (moderation in oil and product prices); oil averaged at US$80/bbl, vs US$84/bbl QoQ, and YTD US$93/bbl (US$100/bbl YoY). SG benchmark GRM was US$8.2/bbl, nearly flat YoY (US$6.2/bbl QoQ), as product prices fell < benchmark oil. Domestic consumption was robust on back of auto fuels and LPG– up 4-5% YoY in Q4. LNG prices collapsed 56% QoQ as fears of supply disruption receded. Petchem deltas across the chain were up QoQ, but were mixed on YoY basis.
OMCs set to shine:
Analysts at IIFL Capital Services forecast upstream companies to register 7-18% YoY PAT growth in Q4, on low oil but higher gas prices. However, muted production continues to be an issue. On the other hand, OMCs are set to report the best quarter for the fiscal, as the auto fuel margins rebound, with IOCL reporting the highest earnings growth, followed by HPCL. IGL and MGL are set to report 11-28% earnings growth; while GGAS on the other hand on back of aggressive price cuts to gain back industrial volume should report 38% YoY fall in earnings (cut FY23 PAT by 15%). GAIL should report strong quarter as LNG prices moderate. RIL is seen reporting 11% YoY growth in earnings, driven by steady growth in B2C segments that are partly offset by higher interest outgo.
KP Committee report positive for IGL:
OMCs are set report “V” shaped recovery in earnings in FY24, given that the operating environment is expected to remain favourable. Beaten-down valuations offer compelling risk-rewards. With a focus to gain back volumes at Morbi, CGAS is all set to benefit from weak LNG prices in FY24 (top pick); weakness in RIL’s stock price offers a good trading opportunity. Lowering of APM gas prices (US$6.5/mmbtu) bodes well for IGL and MGL; Analysts at IIFL Capital Services like IGL with better volume growth.
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