Oil and Gas (Q2FY26 Result Preview): Strong refining margins to lift earnings

We expect our coverage universe EBITDA to increase by 46.8% YoY, +14% QoQ, owing to an improvement in profitability from the downstream segment due to higher refining GRMs. Upstream segment earnings to decline by 0.2% YoY but grow by 6.3% QoQ owing to sequential rise in crude prices and rupee depreciation. We expect high LNG spot rate to have an adverse impact on natural gas offtake volume from Industrial and Commercial customers. Hence, IGL/MGL/GGL to record volume growth of ~3/3/-4% QoQ each. We expect GAIL’s EBITDA to reduce by 3% QoQ owing to lower transmission & marketing volumes and weakness in LPG business. Lower gas offtake from CGD players to impact GSPL’s volumes. We expect Reliance Industries (RIL) to report EBITDA of INR 455bn (+16.4% YoY, +5.9% QoQ), supported by a steady performance from the retail, O2C and telecom segments. We upgrade RIL to BUY from ADD.

OMCs: We expect core GRMs of IOCL and BPCL to improve to USD 11.2/12.4 per bbl, up from USD 6.9/5.24 per bbl in Q1FY26 owing to improvement in gasoil and ATF crack spreads. Crude through put to decline by 4% QoQ for IOCL and remain flat for HPCL and BPCL. The average Brent price and USD is up ~2% QoQ each to USD 68.3/bbl and INR 87.4 in Q2 implying a decline in blended marketing margins for the OMCs during the quarter.

RIL: We expect RIL’s consolidated EBITDA to increase to INR 454bn, up ~16% YoY, +6% QoQ. Oil-to-chemicals (O2C) EBITDA/tonne of crude processed is estimated to increase by ~5% QoQ, owing to an improvement in petroleum product cracks and an improvement in petchem margins QoQ. We expect the retail business segment EBITDA to increase by ~9/3% YoY/QoQ to INR 62.1bn. We have estimated ~8mn subscriber addition and ARPU of INR ~211 in Q2.

Upstream players: We expect ONGC and Oil India Ltd (OIL) to record ~7/4% QoQ rise in revenue, owing to ~2% increase in average crude prices, ~2% rise in USD and higher oil production. OIL’s crude oil production to increase by 1% QoQ while growth in ONGC’s oil production to remain flat. EBITDA for ONGC/OIL is estimated to rise to INR 188/21bn, up 1/30% QoQ.

CGD: We expect a lower volume growth of ~3% QoQ each for MGL (standalone)/IGL and decline of ~4% QoQ in GGL’s volumes owing to high spot LNG price environment. For IRM Energy, we expect flat QoQ volume expansion as growth in CNG volumes to be offset by decline in I&C PNG volumes. We expect the EBITDA/scm margin to remain subdued for IGL/MGL at INR 3.8/11.1 per scm as against INR 6.2/12.6 recorded in Q1. This decline in EBITDA/scm is due to higher gas cost which has not been passed through to consumers and rupee depreciation. However, we expect GGL/IRM to record sequential improvement in EBITDA/scm to INR 6.7/5.0 owing to higher share of CNG volumes.

PLNG/GAIL/GSPL: We expect PLNG’s EBITDA to climb 14% QoQ to INR 13.2bn owing to lower other expenses. Total volumes are expected to increase by 0.5% QoQ to 221tbtu. We expect GAIL to report EBITDA of 32bn, down 3% QoQ, owing to lower transmission and marketing volumes and weakness in LPG business. Gujarat State Petronet’s (GSPL) average volume is expected to decline by ~6% QoQ to 27.9mmscmd due to lower offtake which was impacted by high spot LNG gas cost. We estimate GSPL’s EBITDA to decline by ~3% QoQ to INR 1.9bn and PAT to increase to INR 2.8bn owing to higher other income.

Disclaimer : This content is only for informational purpose. Do not make any investment based solely on these recommendations as they do not factor in your unique risk profile and investment objectives.

Source: HDFC Securities Institutional Equities

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