Subsidy is a drag on oil PSUs
Mumbai, July 14: The April-June period has been extremely eventful for India’s oil & gas sector, but some things remain unchanged.
Although fuel prices have been partly freed up, the oil marketing firms — Bharat Petroleum, Hindustan Petroleum and Indian Oil – will still need subsidies from the government to offset their losses.
The outlook for upstream oil companies — ONGC and OIL — will depend upon the subsidy sharing mechanism that the government comes up with.
Margins from the oil refining business — the mainstay of Reliance Industries — are expected to improve. Not surprisingly, RIL remains the top pick in the sector. Another stock that finds favour with markets is Gail, which is expected to benefit from the increasing role of gas in the economy. Compared to FY10, crude oil prices were up 31 per cent to $77.7/barrel, says Macquarie.
Diesel prices were also high internationally compared to the previous year, which is positive for refiners such as RIL, the broker says.
Most brokers expect the company to clock in a margin of $7.5-8/barrel from its refining business. Gail is also expected to see a big jump in earnings as it moved a larger volume of gas in its pipelines.
Mumbai-based Elara Capital expects the total losses of the oil marketing firms at Rs 18,000 crore.
In absence of a clear subsidy sharing formula, most analysts are unwilling to put estimates on the earnings of these firms. It is also not clear yet on how much of this load will be taken up by ONGC and Oil India.
However, ONGC is exp-ected to see a hike in crude oil production — its share of petroleum from Cairn India’s block in Rajasthan. Cairn India is also expected to see earnings shoot up as its oil field in Rajasthan has finally started production.
Post new comment