According to Nomura's latest report, Indian Oil Corporation (IOC) remains the brokerage's preferred pick among Oil Marketing Companies (OMCs) under coverage. As reported by The Financial Express, Nomura stated that it prefers refiners like IOC as it expects robust refining margins to continue in the near term. The brokerage believes the company could be the least impacted by marketing under-recoveries among their covered OMCs. Nomura estimates integrated margins for IOCL at $8.3 per barrel, BPCL at $6.8 per barrel, and HPCL at $0.8 per barrel at current prices.
According to Nomura's report, a major theme highlighted is the continued strength in diesel and aviation turbine fuel margins. As reported by The Financial Express, diesel cracks are currently tracking around USD 50 per barrel, while aviation turbine fuel cracks remain close to USD 54 per barrel. Before the conflict, these margins typically ranged between USD 15 and USD 20 per barrel. The brokerage noted that this sharp increase has been driven by multiple global supply disruptions, including refinery shutdowns caused by crude shortages and infrastructure damage from drone and missile attacks affecting fuel production in several regions.
Nomura also sees significant value in India's City Gas Distribution (CGD) companies, as reported by The Financial Express. The brokerage believes recent gas price hikes have significantly reduced risks to profitability for the sector. According to the report, Q1 could be the bottom in terms of CGD margins. Nomura expects demand growth to remain healthy due to multiple factors, including industrial consumers finding natural gas attractive as alternative fuels become more expensive and less available, while government efforts to increase domestic gas consumption are supporting demand.
Recent market data shows strong performance in CNG volumes across key players, with Indraprastha Gas (IGL) and Gujarat Energy (GEL) seeing 27.2% and 34.8% year-on-year growth respectively in CNG registrations in May, as reported by Business Standard. Mahanagar Gas also posted a 1.4% increase, with penetration up by 580 basis points Y-o-Y for IGL and 410 basis points for GEL. Potential growth in CNG volumes over the next 12 months is projected to be 15% for GEL, 8% for MGL and 9% for IGL. However, rising LNG costs and supply uncertainties are squeezing CGD margins, with total LNG imports in May down 40% year-on-year despite increased US imports.
