Oil and Gas share price target

We expect Q4FY23E earnings for the 12 oil & gas companies under our coverage to show strong sequential improvement, with operating earnings (EBITDA) likely to rise 10%/20% YoY/QoQ to Rs833bn and net income to be up 2%/26% YoY/QoQ to Rs438.2bn.

The philosopher Michel de Montaigne once said that, “There is no passion so contagious as that of fear.” The fear of a financial crisis that started at the headquarters of Credit Suisse quickly spread to Wall Street and the stock markets world over. Last week, it knocked at the door of oil markets which were otherwise going steady in the hopes of a brighter 2023.

We have recently highlighted our positive outlook on the gas space for FY24E driven by i) Kirit Parikh Committee (KPC) recommendations to reduce domestic gas costs for priority sector, ii) rising domestic supplies, iii) relatively moderate LNG costs, and iv) stronger prices of industrial fuel alternatives (propane, FO, naphtha).

Brent crude prices have remained flattish over the past few months, with limited traction seen in demand in the near term. There has been no material disruption in Russian crude shipments despite the price cap by EU coming into force w.e.f 5th Feb 2023.

We expect markedly stronger prospects for Indian gas companies in FY24E, helped by i) rising domestic supplies, ii) moderate LNG costs, iii) probability of resumption of liquid fuel price hikes by OMCs and iv) stronger prices of industrial fuel alternatives (propane, FO, naphtha).

Q3FY23 EBITDA for oil & gas coverage universe was flat YoY, with PAT down 17% YoY for the quarter. QoQ trends were stronger, with 91% growth in EBITDA and 4.6x growth in PAT. The YoY weakness in Q3FY23 continues to be on account of weak OMC metrics, with sharply lower marketing earnings vs FY22 levels affecting earnings.