NEW DELHI: While the sharp reduction in corporate taxes may boost the Indian oil and gas sector’s earnings sharply during the second quarter, analysts note that the three-month period between July and September is likely to be a muted one in terms of financial performance. According to Centrum Wealth analysts Probal Sen and Akshay Mane, without adjusting estimates to factor in corporate tax cut in the absence of clarity on how companies account for it during the quarter, the oil and gas sector is likely to see year-on-year earnings growth impacted due to “sharply higher inventory gains and much higher upstream earnings” during the second quarter of last year.
“That being said, we see a stronger quarter-on-quarter performance from oil marketing companies (OMCs), thanks to an improved downstream margin environment and better marketing margins,” the analysts said. According to estimates, OMCs are set to see higher marketing margins by as much as 12.9 per cent, 7.1 per cent and 8.2 per cent for IOCL, BPCL and HPCL respectively.
City gas distribution firms like Indraprastha Gas, Mahanagar Gas and Green Gas are also expected to deliver a strong quarter in terms of year-on-year growth with an estimated 58 per cent rise in profit after tax “driven by soft spot LNG prices and strong volume growth”. But, upstream companies like ONGC and Oil India Ltd are likely to fare much worse than their downstream counterparts.
“Lower Brent Crude prices in Q2 (down 17.6 per cent year-on-year), coupled with weak oil production and lower realisations drive a weak performance for ONGC and OIL. Combined, EBITDA for the two companies estimated to decline by 14.5 per cent year-on-year,” the analysts said. However, some weakness may be offset by a marginal improvement in gas production for both oil and gas producers.