Oil and Gas share price target

Q1FY23 earnings for our oil & gas coverage universe saw a material hit from the sustained losses in fuel retailing by OMCs, which offsets an otherwise strong performance by RIL, upstream players and CGDs.

policy overhang about subsidy sharing among oil companies given high marketing losses. Also, ~240mbbls crude oil release from strategic reserves of US and other countries have softened crude prices. Fuel price hikes along with softening crude prices will ease concerns of marketing losses. However, we expect prices to remain stable at current levels due to ongoing geopolitical tensions. We prefer upstream companies as they will continue to benefit from high crude oil and gas prices. For OMCs marketing margins will...

Rs172.6bn on back of strong refining margins (GRMs up +USD1.8/bbl) and inventory gains of Rs215bn, even as marketing segment earnings will report losses. Upstream players will benefit from higher crude (+USD20/bbl QoQ)). RIL's standalone earnings will grow 23% QoQ, given higher refining profitability. CGD earnings (+25%QoQ) will recover led by higher margins...

We cut our OMCs earnings for FY23-24E by 3-9% to factor in lower marketing margins, offset by higher GRMs. However, we increase our FY22E earnings by 4-25% to factor in strong Q4 results, given high inventory gains and GRMs. Government's dithering on fuel price hike despite sharp up-move in crude oil prices creates fresh headwinds on OMCs earnings. With crude prices likely to remain elevated due to geopolitical tensions compounded with marketing losses of over Rs12/litre, we cut our marketing margin assumptions for FY2324E to Rs3.0/3.5litre for petrol and diesel from Rs4.2/4.5/litre earlier after factoring in higher GRMs (+USD1.2-1.8/bbl)). We believe that comfortable...