Oil And Gas Q1 Results Preview: Reliance Industries Ltd, Bharat Petroleum Corporation Ltd, Indian Oil Corporation Ltd, and other oil marketing firms are anticipated to report a solid Q1, whereas it appears to be slow for the gas companies.
HSBC Global Research indicated in its 1QFY26 preview on the oil and gas sector in India that refiners are expected to outperform gas infrastructure. The global brokerage house maintains a Buy rating on Indian Oil, Hindustan Petroleum, Bharat Petroleum, and GAIL; a Hold rating on Petronet; and a Reduce rating on Oil & Natural Gas.
The global brokerage noted that it anticipates strong earnings growth for Oil Marketing Companies (OMCs), with robust gross refining margins (GRMs) and marketing margins; however, domestic gas production, gas consumption, and imports remain sluggish.
Domestic brokerage house, JM Financials has reiterated a BUY rating on Reliance Industries Ltd (RIL), noting that RIL possesses top-tier capabilities across its various sectors, which should enable a strong EPS growth of 15-20% CAGR over the next 3-5 years. The domestic brokerage anticipates that O2C EBITDA will remain stable quarter-on-quarter, as reduced crude throughput and slight inventory losses will counterbalance a minor quarter-on-quarter improvement in GRM.
Additionally, it is expected that EBITDA from the E&P sector might decline by 2.9% quarter-on-quarter due to the natural reduction in output from KG D6 gas.
Volatile crude oil price trends
HSBC Global Research reported that 1QFY25 experienced considerable price and GRM volatility, which persisted through June. At the beginning of Q1, investors anticipated a slowdown in global oil growth due to economic disruptions related to tariffs, despite OPEC and non-OPEC countries planning to increase supply.
Amid this scenario, GRMs peaked at their highest levels in 12 months, benefiting from a noticeable delay between crude and product pricing, along with improved spreads on fuel oil. Nevertheless, due to uncertainties stemming from regional conflicts and tariffs, both oil prices and GRM experienced fluctuations throughout the quarter. By the quarter’s conclusion, average oil prices had decreased while GRMs had risen.
During the quarter (April-June), the price of crude oil has fallen by more than 9%. The peak price in Q1 reached $79.40 per barrel, while the lowest recorded was $58.40 per barrel, according to investing.com.
OMCs
The brokerage indicated in its report that it anticipates nearly a doubling of earnings quarter-over-quarter due to robust marketing margins and a better spread on fuel oil. However, for IOC, the previous year had advantages from inventory gains and a lower tax rate, thus restricting the quarter-over-quarter growth. Over the last three months,RIL and OMCs have surpassed the performance of the Nifty 50.
Gas infrastructure
The brokerage anticipates a 5% quarter-on-quarter and 28% year-on-year decline in earnings for GAIL due to lower gas transportation volumes, as demand for gas from the power sector has decreased. A reduced proportion of spot LNG impacts marketing margins, leading to reduced profitability when compared year-on-year.
For PLNG, the brokerage forecasts a 20% year-on-year decrease in volumes, but an annual rise in tariffs is expected to mitigate some of the impact. According to the brokerage, diminished support from LNG marketing margins will ultimately cause a 14% quarter-on-quarter and 19% year-on-year drop in earnings.
Upstream
“ONGC continues to disappoint on crude oil production. The much awaited gas production growth has yet to materialise. In addition, weaker Brent prices will drive down earnings for ONGC. We expect 13% q-o-q growth, albeit a 19% y-o-y decline in earnings,” the brokerage said.
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