IOC’s earnings likely to moderate in Q2 FY24 

State-run Indian Oil Corporation (IOC) is expected to witness a moderation in earnings in Q2 FY24 largely on account of the impact of rising international crude oil prices on its marketing margins.

However, strong gross refinery margins (GRMs) will partly offset the weak marketing margins of the country’s oil marketing companies (OMCs). IOC, the country’s largest OMC, is scheduled to report its Q2 FY24 performance on Tuesday.

Broking and investment firm JM Financial had earlier this month said that OMCs’ Q2 FY24 earnings was likely to moderate from the record high in Q1 FY24 due to the sharp impact of higher crude price/product cracks on marketing earnings.

The OMCs’ weighted average auto-fuel gross marketing margin has moderated to Rs 3.3 per litre in Q2 FY24 from the record high of more than Rs 8.8 in Q1 FY24 (against the normalised margin of over Rs 3.5 a litre), it added.

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However, the OMCs’ reported GRM (including inventory gains) is likely to rise sharply to $14-19 a barrel (IOC: $18.6) due to a sharp increase in diesel cracks (partly offset by moderation in Russia crude discount). This would be after adding the crude inventory gain of $6 a barrel for IOC, given the quarter-on-quarter rise of $19.1 a barrel in Brent crude price in September 2023, against June 2023, it said.

Similarly, equity research and advisory firm Prabhudas Lilladher said, “We expect OMCs’ results to be operationally weaker owing to a sharp fall in marketing gains of petrol and diesel due to rise in benchmark prices. However, Benchmark Singapore refining margins during the quarter have strengthened to $9.6 a barrel vs $3.8 Q-o-Q, on the back of rising diesel cracks.”

Steady quarter for GAIL

Another state-run oil and gas major, GAIL is also scheduled to report its performance for the September quarter on Tuesday.

The country’s largest gas utility is expected to report a growth in volumes in Q2 FY24.

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According to Prabhudas Lilladher, GAIL’s performance is expected to improve with an increase in transmission, trading and petrochemicals volumes. Transmission volumes are likely to reach 118 million standard cubic metres per day (mscmd), while trading volumes are estimated at 103 mscmd. It anticipates petrochemicals volumes to reach 202 kilo tonnes in Q2 FY24.

Asian spot LNG price has risen marginally to $12.2 per million British thermal units (mBtu) in Q2 FY24 against $11.1 per mBtu in Q1 FY24 due to risk of disruption in LNG supply from Australia., JM Financial said.

However, continued strong demand for gas from the power sector (to address peak power deficit) is likely to result in 3-4 per cent Q-o-Q growth in India’s gas demand, aiding volume growth for GAIL, it added.

The brokerage expects largely flattish operating profits for GAIL in the September quarter, assuming a 17 per cent Q-o-Q rise in gas transmission EBITDA, driven by steady integrated pipeline tariff, normalisation of high gas cost in Q1 FY24, and 1.4 per cent Q-o-Q rise in gas transmission volume to 118 mscmd.

Another reason for the flattish EBITDA is the expectation of a 12 per cent Q-o-Q decline in gas trading EBITDA volume driven by normalisation of margin to Rs 1,050 per trillion cubic metres (TCM), against Rs 1,226 per TCM in Q1 FY24, while volumes are likely to rise 1.2 per cent Q-o-Q at 100 mscmd.

The continued losses in petrochemicals due to weak margins, despite an improvement in plant utilisation, and a further fall in LPG earnings following a decline in global LPG prices to $473 per tonne in Q2 FY24, against $520 in Q1 FY24, could keep the upward trajectory of operating profits in check.