We expect players across the gas value chain (CGDs, PLNG, GSPL) to report robust earnings growth led by steady volume growth and margin expansion. Key highlights, CGD, margin expansion in CNG/domestic PNG coupled with steady volume growth is likely to drive higher earnings of IGL/MGL. GGL’s robust volume growth is likely to be offset by lower industrial margins (spike in spot LNG), leading to muted earnings growth; we expect PLNG to report robust Ebitda growth (up 25.5% y-o-y) led by higher volumes and regas tariff revision; GSPL will benefit from higher volumes with Q3 run-rate at 38.5mmscmd, leading to 15.4% y-o-y rise in Ebitda.
Although core refining and marketing margins will contract y-o-y, inventory gains (versus loss last year) will drive earnings growth; RIL: We estimate Ebitda to increase 3.4% y-o-y with strong growth in RJio/retail/refining offsetting petchem weakness. CGD volumes remain robust; retail margins steady We expect GGL to continue to spearhead volume growth due to Morbi (up 38.3% y-o-y), followed by IGL (up 10.4% y-o-y) and MGL (up 2.5% y-o-y). IGL and MGL have benefited from price differential versus alternate fuels and taken price hikes across CNG/PNG this year. Consequently, we expect higher margins at IGL (Ebitda: Rs 6.7/scm, up 10.6% y-o-y) and steady margins at MGL (Ebitda: Rs 8.7/scm, down 1.0% y-o-y). GGL’s margin at Rs 3.9/scm (down 26.6% y-o-y) will be lower as it will be unable to pass on hike in spot LNG price due to lower increase price of competing product LPG. While PLNG is estimated to clock robust volume growth led by capacity expansion at Dahej, GSPL will benefit from higher volumes at Morbi. RIL, Petchem weakness offset by consumer strength. We estimate RIL’s consolidated earnings to rise 11.6% y-o-y to `114 bn with lower petchem Ebitda (down 22.6% y-o-y) offset by higher refining (up 4.7% y-o-y), RJio ( up 45% y-o-y) and retail (up 56% y-o-y). Spread versus Singapore GRM will widen to $7.5/bbl due to lower FO share and resumption of secondary units in Q3 (BS-6 shutdown in Q2). OMC: Inventory gains offset core weakness. Benchmark margins have declined in Q3FY20 to $1.7/bbl (down 73% q-o-q) led by collapse in HSFO cracks to $(19.8)/bbl due to IMO. However, given the significantly lower HSFO share in product slate of Indian refiners, decline in GRM at Indian refiners will be far lower. Additionally, given the surge in crude prices in December, we expect significant inventory gains at OMCs. Consequently, we estimate GRMs across IOC/BPCL/HPCL/RIL at $4.1/4.5/6.0/9.2 per bbl in Q3FY20.
Outlook, ‘Positive’ on gas; Top picks include RIL, Gujarat Gas and GSPL. We continue to remain positive on Gujarat Gas plays due to steady demand growth coupled with ample re-gas capacity coming up in Gujarat. Lower gas prices till FY22 will continue to incentivise shift to gas from alternate fuels. Gujarat Gas may further benefit from favourable NGT rulings in other GA’s (similar to Morbi) in Gujarat.