We expect RIL to see EBITDA growth of 11% q / q driven by O2C and Retail. Subscriber adds in Jio, a renewed foreclosure of retail and petrochemical margins is essential. OMC’s operational performance is expected to decline q / q due to lower commercial margins. Inadequate price increases due to the elections could weigh on the privatization of BPCL. P-LNG EBITDA is expected to decline q / q on an unfavorable spot price, but volumes have recovered while GAIL Ebitda is expected to grow 34% q / q on gas trading profits.
RIL’s operational performance is expected to improve strongly compared to T / O: we expect an 11% improvement in T / T of the Ebitda console. O2C was supported by improved profitability in petrochemicals and refining while retail benefited from the normalization of demand. Jio’s EBITDA is expected to be stagnant on a sequential drop in revenues (impact of UCI) but widened the EBITDA margin. Renewed restrictions could weigh on the outlook for retail trade in the near term.
Refining continued a modest recovery in TQ: the Asian benchmark GRM averaged $ 1.8 / bbl in Q4FY21 (vs. $ 1.2 in Q3) against a ten-year average of $ 6.2 / bbl with continued weakness in diesel, jets and LPG. Renewed Covid restrictions in Western Europe and parts of Asia are expected to weigh on margins in the near term.
Marketing margins fell sharply quarter over quarter: margins fell about 27% per quarter as the WTO did not pass on the full extent of the gross rally, likely due to national elections. Margins on gasoline are in negative territory and on diesel languish well below normative levels. As in the past, we expect the WTO to recoup the lost margins after the elections if crude remains at current levels. The WTO lowered the retail price of automotive fuels by `0.6 / l in the last week of March. Such reductions are in our opinion negative for the privatization of BPCL.
Weak operational performance of OMC in the fourth quarter: with basic refining remaining weak and marketing profitability down sharply on a quarterly basis, operational performance will show a strong quarterly decline. The reported figures will be supported by inventory gains in refining. Refinery marketing volumes and production could be adversely affected in the first quarter of fiscal 22nd due to the renewal of restrictions.
Petronet-LNG would have a strong impact on spot prices: we expect Dahej’s volume to drop 5% and sales margin to shrink due to the very high spot price in January. We expect a sequential decline of 7% in EBITDA in the fourth quarter. We note that Dahej’s volume improved during the quarter with a March utilization rate> 100% which bodes well for Q1FY22e.
GAIL is expected to report PAT growth in the quarter: we forecast a 34% improvement in GAIL sequential EBITda as gas trading moves from a loss to a high profit on a favorable Spot LNG price. LPG’s profitability is expected to improve sequentially.
RIL’s top pick: We reiterate our positive stance on RIL as we see progress with an affordable smartphone and a sale of stake in O2C’s business in fiscal year 22. Even if HPCL and IOCL remain near low cyclical valuation multiples, the reassessment may wait until crude drops or demand recovers as vaccines penetrate. We prefer P-LNG on an attractive valuation.