IDirect OilGas SectorUpdate Mar20 PDF
IDirect OilGas SectorUpdate Mar20 PDF
IDirect OilGas SectorUpdate Mar20 PDF
Sector Update
disagreement between Opec and Russia regarding a reduction in oil output realisations and profits
has resulted in a sharp drop in crude oil prices. drastically
Higher marketing margins to provide some relief Due to restrictions on travel and
Oil marketing companies (OMCs) are expected to face huge inventory losses closure of industries amid
during the quarter and report losses. However, higher marketing margins nationwide lockdown, CNG &
are expected to provide respite to OMCs as the cost benefit has not been PNG sales are expected to
fully passed on to consumers. In the first fortnight of March 2020, product decline 25-30% in Q1FY21 (base
sales of OMCs have reduced by 10% YoY owing to lowered demand amid case scenario)
the Covid-19 spread. On refining profitability front, weak gasoline, gasoil and
jet fuel spreads will keep refining margins subdued in the near term.
Gail
Gail’s gas transmission segment is expected to be impacted owing to lower
demand. We expect a 4% decline YoY in transmission volumes for
Q4FY20E. The gas trading segment is also expected to report lower volumes
at 93 mmscmd in Q4FY20E. We expect 4% YoY decline and 4% YoY decline
in transmission and trading segment, respectively, for Q1FY21E. We lower
our transmission tariffs in FY21E and FY22E to account for lower tax rates.
Profitability of the LPG pipeline segment is expected to decline due to lower
volumes and reduced tariffs. In case of LPG and liquid hydrocarbon
segment, we expect volumes to decline 3% YoY for Q4FY20E and 7% for
Q1FY21E. However, its realisations are expected to remain steady, going
ahead. On account of low crude oil and spot gas prices, petchem and gas
trading segments, respectively, continue to remain a concern for Gail. We
maintain HOLD rating and value Gail using the SOTP method with a revised
target price of | 80/share.
Gujarat Gas
Gujarat Gas’ industrial sales volume are expected to be impacted by the
closure of ceramics and textile industries during the lockdown period. We
expect a decline of 3% QoQ in industrial sales for Q4FY20E and 21% decline
QoQ for Q1FY21E as the closure may continue in the next quarter also. CNG
volumes are also expected to decline due to travel restrictions put up by the
government. We expect 13% decline QoQ in CNG sales for Q4FY20E and
19% decline QoQ for Q1FY21E. Going forward, in the long run, we maintain
our estimate of steady volumes with healthy margins of | 6.7/scm for FY21E
and | 6.9/scm for FY22E. We revise the target price to | 290 per share (18x
FY22E EPS) and maintain our BUY rating.
ONGC
The movement in international oil prices is important for ONGC's
performance, going ahead. Increase in the global oil production from current
levels is expected to lead to a substantial oversupply in the oil market while
subsequent lower oil prices are going to impact ONGC’s profits drastically.
We model oil prices of US$37.5/bbl for FY21E and US$50/bbl for FY22E,
given the currently volatile oil market scenario. Also, the regulatory body is
likely to reduce domestic natural gas prices by 25% to US$2.5/mmbtu from
Q1FY21E, which will impact ONGC’s earnings. Considering the lower output
and current realisations, in spite of lower valuation, we maintain HOLD rating
with a target price of | 65/share. We value the core business i.e. standalone
& OVL at | 50/share (6x FY22E core earnings) & investments at | 15/share
(50% discount to current MCap).
Petronet LNG
Petronet LNG’s spot volumes will be impacted significantly due to lower
offtake. Media reports indicate that the company recently invoked the force
majeure clause due to reduced demand. We expect regasification volumes
to be 5% lower QoQ to 105 tbtu in Q4FY20E. Similarly, we expect further
decline of 5% QoQ to 100tbtu in Q1FY21E as demand will continue to remain
lower at the start of Q1FY21E. We expect sales to decline 7% YoY for
Q4FY20E with a further decline of 11% YoY expected for Q1FY21E.
However, with India continuing to be short of natural gas supply, Petronet
LNG will benefit and remains a structural story of India’s increasing gas
demand. We change our rating from HOLD to BUY with a revised target price
of | 245 (12.5x FY22E EPS).
Exhibit 17: Price Charts ( LHS = stock price RHS = Nifty Index)
Mar-17
Mar-18
Mar-19
Mar-20
Sep-17
Sep-18
Sep-19
Mar-17
Mar-18
Mar-19
Mar-20
Mar-17
Mar-18
Mar-19
Mar-20
Sep-17
Sep-18
Sep-19
Sep-17
Sep-18
Sep-19
BPCL NIFTY Index GAIL NIFTY Index GUJARAT GAS NIFTY Index
Source: Bloomberg, ICICI Direct Research Source: Bloomberg, ICICI Direct Research Source: Bloomberg, ICICI Direct Research
Mar-17
Mar-18
Mar-19
Mar-20
Sep-17
Sep-18
Sep-19
Mar-17
Mar-18
Mar-19
Mar-20
Sep-17
Sep-18
Sep-19
Mar-17
Mar-18
Mar-19
Mar-20
Sep-17
Sep-18
Sep-19
0 0 0 0 0 0
Mar-17
Mar-18
Mar-19
Mar-20
Sep-17
Sep-18
Sep-19
Mar-17
Sep-17
Mar-18
Mar-19
Mar-20
Sep-18
Sep-19
Mar-17
Mar-18
Mar-19
Mar-20
Sep-17
Sep-18
Sep-19
Mar-18
Mar-19
Mar-20
Sep-17
Sep-18
Sep-19
Mar-19
Mar-17
Mar-18
May-19
Sep-19
Mar-20
Sep-17
Sep-18
Nov-18
Nov-19
Aug-19
Feb-19
Feb-20
PETRONET LNG NIFTY Index ADANI GAS NIFTY Index MRPL NIFTY Index
Source: Bloomberg, ICICI Direct Research Source: Bloomberg, ICICI Direct Research Source: Bloomberg, ICICI Direct Research
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