Oil and Gas share price target

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.

There has been a surprising lack of traction in LNG prices at the onset of the European winter, with the high levels of inventory and warm temperatures across Europe dragging prices.

We expect Q3FY23 earnings for the 12 oil & gas companies under our coverage to show strong sequential improvement, with operating earnings likely up by a massive 82% QoQ to Rs661bn and net income up 4.1x QoQ to Rs312bn.

Blended marketing margin for petrol & diesel (based on RTP averages ending 13th Dec) reached a 10-month high of Rs2.4/ltr (margins assuming 13th Dec prices only at a higher Rs6.4/ltr), with average GRMs for Q3TD sustaining at US$13-16/bbl for the three OMCs.

Two recent regulatory developments go a long way clearing a few regulatory issues that have been in limbo for the past several years in the Indian gas sector. Recent amendments to the Petroleum and Natural Gas Regulatory Board Act (PNGRB Act) clear lingering concerns on natural gas tariffs to a great extent.