>India Oil & Gas (ANAND RATHI)

Mar ’09 quarter results preview

* Expect low margins to continue. Q4FY09 results would be struck by lower yoy refining and petrochemicals margins; lower realizations for the crude producer will continue. Positive aspects would be the qoq fall in under-recoveries, no upstream subsidy and inventory gains as crude rose US$10/bbl in three months.

* Under-recoveries to be about Rs22bn. Under-recovery in Q4 from losses on sale of LPG (Rs13bn) and PDS kerosene (Rs41bn) would be Rs22bn. This would include over-recovery of Rs5bn on petrol and Rs28bn on diesel (see Fig below). FY09 underrecoveries are expected at Rs1084bn, with upstream support contributing ~30%.

* ONGC, GAIL not expected to provide subsidy. ONGC’s gross realizations on crude would be US$45 a barrel. The net realization would be the same on account of a nil subsidy burden. Gross realizations for Cairn India would be US$48/bbl. The total subsidy payout for ONGC in FY09 would thus be Rs273bn.

* Expect RIL’s refining margins at US$10 a barrel. Reliance’s refining margins could average US$10/bbl, while refining margins of R&M companies would be around US$4-5/bbl. This would include inventory gains on crude. Our estimates for R&Ms incorporate oil bonds. The Singapore benchmark for the quarter was at US$5.7/ bbl.

* GAIL’s and Aban’s profits to increase yoy. GAIL’s PAT is expected to climb 9.6% yoy on account of no subsidies in Q4. Aban’s sales are expected to grow by a third (33%) and net profit rocket 182% yoy, with operating margins at 53% (+1% yoy).

To see full report: INDIA OIL & GAS