However, experts believe that strong refining margins and inventory gains might somewhat offset the decline in marketing profits of downstream oil businesses. They said that RIL shown notable resiliency and expansion during Q2FY24.
With a late increase in crude oil prices and stable retail gasoline selling prices, oil marketing companies (OMCs) might experience a significant decline in marketing profits in the second quarter of FY24.
The average price of Brent crude for the quarter was $87/bbl, an increase of 11% over the previous quarter. The benchmark price at the end of the quarter was $96/bbl, up $21/bbl. The benchmark crude’s closing price on October 12 was $86 billion.
According to experts, this may have an impact on OMCs like Indian Oil, BPCL, and HPCL’s Q2FY24 net earnings.
The decline in marketing margins of downstream oil businesses, such the ones mentioned above, may, however, be somewhat compensated by good refining margins and inventory gains.
Companies that work in downstream industries post-produce crude oil and natural gas.
According to Emkay Global, OMCs’ second-quarter net profit might decrease by 20–50% quarter over quarter (QoQ). This is as a result of the sharp decline in diesel and gasoline margins brought on by the price increase of crude oil and product flaws.
“We expect a sharp QoQ decline (off a bumper Q1FY24 base) in OMCs’ EBITDA (earnings before interest, tax, depreciation, and amortization), as marketing margins on gasoline and diesel declined sharply,” Kotak Institutional Equities stated. However, we anticipate that sequential improvements in refining margins and perhaps significant unanticipated gains will offer some protection in Q2FY24.
In Q2, gross refining margins increase.
The increase in diesel-kero gaps and a slight increase in gasoline likely caused the benchmark Gross Refining Margins (GRMs) to rebound to $9–10/bbl for the quarter. Due to heightened worldwide product cracks, Nuvama projects a 36 percent YoY and 2.3x QoQ rise in Singapore GRMs.
We include GRMs of $4, $9, and $12 per barrel for BPCL, HPCL, and IOCL, respectively. Refinery utilization is anticipated to stay far above nameplate capacity. Retail margins have significantly increased YoY, according to Nuvama.
While BPCL and HPCL are projected to have a 15-20% reduction as a result of shutdowns and pre-commissioning, IOCL is predicted to achieve flat EBITDA QoQ, according to Emkay. For Indian Oil, BPCL, and HPCL, the Q2 FY24 PAT forecasts are Rs 11,300 crore, Rs 7,400 crore, and Rs 3,100 crore, respectively.
Gains in inventories are made possible by a recent spike in crude oil prices.
With an average price of $87 per barrel in Q2FY24, Brent crude had an 11 percent sequential increase in Q2, giving OMCs significant gains on their refining inventories.
It increased at the close to $96/bbl, giving OMCs significant gains in refining inventories of $3 to $6/bbl. The benefit that OMCs obtain from an increase in end-product prices that are already kept in stock is known as inventory gains.
However, potential worries included the declining Russian crude discounts and an increase in Middle East official selling prices (OSPs).
According to analysts, QoQ gas marketing margins are predicted to be unchanged, while petchem losses are predicted to persist despite subdued realisations and 82 percent plant utilization levels.
“LPG earnings are likely to be weak,” said Emkay, “as Aramco’s LPG original selling prices have decreased by about 28% QoQ.”
Emkay forecasted that GAIL’s standalone PAT will be Rs 1,780 crore, up 15% YoY. Furthermore, according to Nuvama, GAIL’s EBITDA could rise by 27 percent year over year due to growth in the transmission segment driven by greater volumes and prices.
R & D Industries
Analysts said that Reliance Industries Ltd (RIL) shown significant growth and durability in the second quarter of FY24. RIL’s EBITDA was predicted to increase by 26 percent YoY by Nuvama due to the company’s outstanding performance in every sector.
“We anticipate a 45% YoY increase in EBITDA for RIL Oil and Natural Gas due to increased deepwater gas prices. In spite of the weak petchem market, we anticipate a 30 percent YoY increase in Oil-to-Chemicals EBITDA owing to robust refining. Due to increased foot traffic, retail EBITDA is projected to continue healthy. A large user base will likely cause Jio’s EBITDA to increase 18 percent YoY. ARPU would probably stay at Rs 173, the brokerage noted.
According to Kotak Securities, “We expect consolidated EBITDA to improve by 6 percent QoQ on better standalone performance and steady growth in digital services and organised retail.”
RIL is anticipated to have a high performance overall in the O&G sector, while other businesses should post respectable results, according to Emkay.