RIL, ONGC, BPCL, HPCL, IOC, GAIL, IGL, MGL: Winners and losers of US-Iran deal

Nomura India on Tuesday said oil marketing companies, city gas distributors (CGDs) and companies such as Petronet LNG are likely key winners of the US-Iran peace deal and the potential opening of the Strait of Hormuz (SoH). The developments may have negative impact on refiners and upstream companies, it warned. Overall it sees up to 28 per cent upside on 11 oil & gas stocks.

OMCs such as BPCL, HPCL and IOC may gain on lower under recoveries. Petronet LNG will see a positive impact on increased utilisation due to lower LNG price and availability of Qatar volumes. Lower gas costs may aid margins of city gas distributors such as IGL, MGL and Gujarat Energy Ltd (erstwhile Gujarat Gas Ltd). They will be a mildly positive for GAIL  amid higher transmission volume offset by negative impact on marketing and LPG production margins. Similarly, the developments will lower gross refining margin (GRM) for Reliance Industries Ltd (RIL), which will be partly offset by petchem cost benefit. Lower crude and gas realization is seen negative for ONGC Ltd and Oil India Ltd. 

Here are target prices for 11 oil & gas stocks:-

OMCs are seen benefitting immediately as oil prices trend lower.  

"OMCs have seen a sharp turnaround of their integrated margins since the lows seen
towards April-end, driven by a combination of price hikes, excise duty cuts, SAED (Special Additional Excise Duty) on exports of oil products which directly benefits OMCs,
and a fall in oil prices (from the highs of April). We estimate integrated margins for IOCL, BPCL and HPCL at $12-14/bbl at current prices. The SAED impact would be most significant for HPCL due to its higher proportion of retailing volume vs refining throughput," Nomura said.

Among its covered CGDs, Nomura prefers Mahanagar Gas (Buy) and Gujarat Energy (Buy), with potential upside of 31 per cent and 32 per ecnt, respectively. Industrial volume
of Gujarat Gas could be under risk once propane availability improves, Nomura said.

"Though there could be immediate relief from SAED removal for standalone refiners,
potential lower refining margins could be negative for them. Reliance (RELIANCE IN,
Buy) may also see lower refining margins especially for its export refinery, which is not
under the purview of SAED. However, some part of lower GRMs for Reliance will likely be
offset by increased petchem margins as the government may allow refiners to use
refinery offgas as cracker feedstock," Nomura said.

Meanwhile, according to Nomura's discussion with PLNG management, volume from Qatar is expected to be at full utilization (for non-damaged capacity) within six weeks of the opening of SoH. Actual dispatch to India will likely begin within the next six weeks as Qatar may need to start evacuation earlier to achieve full capacity.