HPCL, ONGC Q4 preview: Spike in crude prices, decline in GRM to play role?

Two major oil companies namely Hindustan Petroleum Corporation Ltd (HPCL) and ONGC will be presenting their fourth quarter ended March 31, 2017, result later on Friday. 

At 1119 hours, share price of HPCL slumped by 1.47% trading at Rs 501.90 a piece on BSE, while ONGC saw surge of 1.26% trading at Rs 176.35 a piece. 

Performance of oil companies in Q4, is expected to revolve around the strengthening of crude prices and decline in Singapore complex GRM that took place during January – March 2017 period. 

Jal Irani, Yusufi Kapadia and Vivek Rajamani analysts at Edelweiss Financial Services said, “Oil prices and Singapore benchmark have shown diverging trends with oil strengthening and benchmark GRMs slipping on quarter-on-quarter (QoQ) basis.”

The trio added, “We believe upstream will benefit from the oil rally. Inventory gains will likely offset subdued GRMs of oil marketing companies (OMCs).”

Here's what we can expect from HPCL, ONGC in Q4.

HPCL: 

Analysts at Edelweiss said, “We expect a good quarter with profit after tax (PAT)  of Rs 2,300 crore, rising by 44% QoQ, with GRM at $ 5.8 per barrel. Inventory gains will offset 5% QoQ lower benchmark margins.

Furthermore, retail margins remained healthy with diesel/petrol up 8%/16%, while overall domestic fuel demand remained weak during the quarter: Diesel demand down 3% YoY and petrol demand up only 3% YoY. 

On the other hand, Motilal Oswal expects core earnings of HPCL to be hampered led by lower refining and marketing margins during Q4. 

Motilal said, “We model nil subsidy sharing for OMCs; the subsidy in 4QFY17 would entirely be borne by the government. Also we peg HPCL’s refinery throughput at 4.3 million metric tonnes (mmt) for 4QFY17 v/s 4.7mmt in 4QFY16 and 4.7mmt in 3QFY17. “

Thus Motilal expects PAT of the company to be at Rs 1,110 crore in Q4, declining by 28.52% year-on-year (YoY) and 30.20% quarter-on-quarter (QoQ). While net sales is seen at Rs 51,720.6 crore, rising by 22.77% yoy and 6.67% qoq. 

ONGC: 

Unlike HPCL, the performance of ONGC is expected to be strong during Q4. 

Brent crude price was up 8% QoQ and 57% YoY to an average of $ 54.1 per barrel in 4QFY17. While the rise in oil prices would be beneficial for upstream companies like ONGC. 

Edelweiss said, “We estimate strong quarter, with PAT at Rs 5,500 crore, growing by 29% YoY and 27% QoQ. ONGC will benefit from a 5% QoQ increase in oil realisation and 4% higher oil production.”

Motilal said,”We estimate gross and net realization at $ 55.1 PER bbl, as we expect the entire subsidy to be borne by the government. Futher, we may also see one-time royalty hit of Rs 25 crore during the quarter.”

Top-line growth is also good of ONGC. Standalone revenue for the period is expected at Rs 21,088.8 crore, rising by 31.6% yoy and 5.8% qoq. 

Also, EBITDA is expected to be at Rs 11,147.9 crore, rising by a whopping 84.1% yoy and 8.3% qoq basis.