Oil, Gas Sector Check - GRM Strength Not Enough For OMCs: ICICI Securities

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ICICI Securities Report

The continuous losses in the marketing segment for oil marketing companies, owing to strong international petrol/diesel prices and the lack of any price increase seen in either fuel over the last one and half months have been offset by a very strong refining margin environment, with calculated margins for OMCs trending at ~$18-20/ barrel of oil over the recent weeks.

Additional delta is expected from the reported 20% crude sourcing from Russia @20-25/bbl discount to benchmark crude.

However, factoring a record $20-22/bbl gross refining margin for the entire FY23E also cannot offset more than Rs 3-4/ litre of net retail loss on petrol/diesel.

We see a sharply lower earnings per share trajectory for FY24E as well if we factor lower marketing earnings trajectory to continue for longer-than-earlier estimates, owing to the Russia-Ukraine conflict settling into an uncomfortable stalemate, recent setbacks to revive the Iran-Nuclear deal and lack of any meaningful spare capacity from Organization of the Petroleum Exporting Countries to meet the supply shortfall.

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