Bullish on GAIL, Petronet: Sudeep Anand, IDBI Capital Markets

In a chat with ET Now, Sudeep Anand, VP, Institutional Research, IDBI Capital Markets, says expecting Reliance to report a flattish GRM on an yearend basis to $10.4 per barrel. Edited excerpts


GAIL, Petronet have been hitting 52-week highs consistently and in some cases life highs for the past few days or even weeks. What is your call here?

The oil and gas sector has given a return of roughly about 27% in this year since January 1st, 2016 compared to 6% return in Sensex. So, it has definitely outperformed. And GAIL and Petronet is continuously growing. If you look at the gas story in India, Petronet has already expanded its capacity in phases and also a lot of new capacity is coming up.

So we will see a significant growth in gas volumes in India and GAIL being the main transporter in India will definitely get benefit. And GAIL is also now getting gas at a very lower rate and this quarter also we expect a strong profit from petrochemicals business. Overall its transmission and trading volumes will increase in line with your incremental gas flow in India.

So GAIL and Petronet definitely we have a positive view. GAIL in which we have a buy rating and this is one of our top picks in IDBI Capital. So GAIL and Petronet, both we have a positive view.

What about Reliance, especially given the run up of late in the stock? What is it that you hope to hear from the management from the earnings this time?

For Reliance. if you look at the broad numbers in oil and gas, the crude oil price GRMs remains flattish quarter-on-quarter basis. With crude oil price at $46.8 per barrel, GRM is at $5.1per barrel, even rupee dollar exchange rate is more or less flattish. In this quarter, we are expecting Reliance to report a flattish GRM on an yearend basis to $10.4 per barrel. But this quarter probably the story would be on petrochemical where are we are expecting a very strong margins. So in petrochemicals business we are expecting about 15.2% of your margins as compared to 12.7% last year same quarter. This quarter we are expecting a net profit of Rs 7400 crore as compared to last quarter of Rs 7550 crore and roughly about Rs 6560 crore of last year same quarter. Reliance is expected to report a healthy number in this quarter as well.

How do you see the dynamics of the Indian refining sector changing? Indian refining sector has been dominated by Reliance and OMCs. Now there is a new player there. Will that change the dynamics of the way how refining companies will be perceived now?

I do not see any major changes in terms of the refinery capacity and refineries is concerned because I do not see any capacity expansions happening in that front though all the OMCs are recently expanding capacity in brown-field or greenfield. Even they are talking about some mega refinery of about 60 million tons. These things will definitely pan out and will change the refinery scenario over the next four to five years.

You are bullish on both GAIL and Petronet LNG. They are very different companies and have different dynamics. My concern for GAIL is that the gas transmission business which is their main business could see challenges because of poor gas availability. How would you defend that?

If you look at the gas availability, Dahej is expanding its capacity from 10-15 million tonnes. Currently, Petronet is operating at around 13 million tons effective capacity. That will increase by around another two to three million tons which will give additional flow of about 12 to 13 MMSCMD. Most of the gas flows through your GAIL’s pipeline and GAIL’s pipeline is operating at less than 60-70% utilisation level so there is enough scope for that and GAIL’s transmission volume which was 92-93 MMSCMD last year which is expected to grow to around 108-109 MMSCMD over the next two years.

At the same time, GAIL has already booked the expanded capacity in Petronet. That will give an additional volume to its cash trading business. So, GAIL is where we see significant changes in almost all of its segments. We are quite positive on GAIL.