What to expect from oil companies? June quarter numbers

The financial performance of Indian oil companies in the quarter ended June is likely to be a mixed bag.

On the one hand, loss on fuel sales below cost is expected to be lower, which is good news for public sector oil companies. This is mainly because of lower global crude oil prices and diesel price increases, though the depreciating rupee would have negated those benefits to some extent. On the other hand, refining margins were weak during the quarter and that should tell on the numbers of refining companies such as Reliance Industries Ltd (RIL), Essar Oil Ltd, Mangalore Refinery and Petrochemicals Ltd and Chennai Petroleum Corp. Ltd.

A fall in gross refining margin will drive a 6% quarter-on-quarter fall in RIL?s June-quarter net profit, wrote CLSA analysts in a report on 5 July. As seen in previous quarters, RIL?s oil and gas business is likely to suffer from falling production. However, the underperformance of the refining and oil and gas businesses could be compensated to an extent by RIL?s petrochemicals business, which is expected to show some recovery, helped by the weak rupee and lower input costs.

Coming back to the losses of selling fuel below cost, analysts expect the figure to be in the range of Rs.26,000-Rs.29,000 crore. For comparison, total such losses in the March quarter stood at around Rs.37,000 crore and in the June 2012 quarter at about Rs.47,800 crore. Still, oil marketing companies?Bharat Petroleum Corp. Ltd, Hindustan Petroleum Corp. Ltd and Indian Oil Corp. Ltd?are likely to post losses in the absence of government compensation. Earnings of the retailers are at the mercy of the compensation received from the government and upstream oil companies?Oil and Natural Gas Corp. Ltd (ONGC) and Oil India Ltd (OIL). For ONGC and OIL, investors would do well to follow the production numbers and the net price realizations. According to Kotak Institutional Equities, for ONGC and OIL, year-on-year decline in Ebitda (earnings before interest, taxes, depreciation and amortization) and net income reflect lower net price realization at $40 a barrel and $47 a barrel compared with $47 a barrel and $54 a barrel, respectively. As far as Cairn India Ltd is concerned, the company?s net profit is expected to get a boost from forex gains. Production numbers would be crucial to watch out for in case of Cairn India as well.

Source: http://www.livemint.com/Money/1po2OV3w3O4EcUbYNwQEwK/What-to-expect-from-oil-companies-June-quarter-numbers.html

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