It will get better for GAIL; recovery from three-year lows for Petronet LNG
GAILís Q3 was its best ever; we think Q4 will be even better. We expect Ebitda (earnings before interest, taxes, depreciation and amortisation) will increase 14% q-o-q (123% y-o-y), driven by gas transmission (higher volume), LPG (no subsidy and higher realisations early in the quarter), and petchem (higher sales volume and prices, but offset by higher gas cost due to the reduction in domestic gas allocation). For Petronet, Q3 was the weakest in three years. We expect a 12% q-o-q increase in Ebitda driven by a 5% tariff increase and marginally higher utilisation (97%) at Dahej.
RIL Ė stronger refining to offset weak petchem; okay for Cairns: For Reliance Industries (RIL), we expect improved refining GRM (gross refining margin) of $8.7/bbl (versus 7.6/bbl in Q3), which will help negate the impact of further weak petchem (particularly aromatics). We estimate RILís profit after tax (PAT) to be R56.5 billion (up 3% q-o-q). For Cairns, we estimate a 3% q-o-q Ebitda rise due to a 2% increase in volume (190 kboepd) in the RJ block.
Q4 typically good for OMCs, poor for upstream; very weak for OINL: There is much less uncertainty on the subsidy for Q4 this year. The government cash support is already announced (R350 billion). Upstream support is also largely known (ONGC/OIL discount at R56/bbl, and NIL from GAIL). We estimate OMCs to have over-recovery of R109 billion in Q4 and net under-recovery of R60 billion for FY14. Similar to recent years, high over-recovery should enable optically strong Q4 numbers for OMCs. Typically, ONGC and OINL have weak Q4 due to higher write-offs. We expect OINLís Q4 to be particularly weak due to approximately 12% lower oil volume due to the law and order situation in the North East.
Difficult to predict Q4 for IGL, Gujarat Gas and GSPL: Sharp changes in domestic gas allocation, and resultant sharp changes in gas cost and customer prices in the past three-four months have made Q4 earnings prediction difficult for IGL/Gujarat Gas. For GSPL, the zonal revised tariffs (applicable from July 12) are still not finalised. Thus, we are not factoring in the revised tariff. But, if tariffs are decided soon, GSPL may book higher revenue (including the past period impact) in Q4 itself.