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MOSL: Morning India (05/October/18): 1. Oil & Gas - Return of the devil (subsidies)?; 2. Consumer 2QFY19 Preview; 3. ICICI Bank (Board appoints new MD & CEO); 4. Titan; 5. Capital Goods

MOrning India (05/October/18): 1. Oil & Gas - Return of the devil (subsidies)?; 2. Consumer 2QFY19 Preview; 3. ICICI Bank (Board appoints new MD & CEO); 4. Titan; 5. Capital Goods

 

Today’s top research theme

Oil & Gas: Return of the devil (subsidies)?

• OMCs have been asked to absorb INR1/lit in auto fuel. This is in addition to INR1.5/lit cut in excise and a general request to state governments to cut VAT.
• We estimate that this would cut EPS of OMCs by 24-28% in FY20. More importantly, this appears like the comeback of subsidy regime. On LPG/kero, gross under-recovery would be INR650bn. There is a high possibility that government asks upstream and OMCs to share the burden. Instead of cash compensation, bonds may make a comeback.
• We change our valuation methodology and downgrade HPCL to Neutral while retaining our Buy recommendation on the other two. We also highlight that there could be further downside if OMCs are asked to share subsidies on LPG/kero.

Piping hot news

Govt blinks, reduces excise duty on petrol, diesel by ₹2.5/litre

• A day before the Reserve Bank of India’s monetary policy review, the centre on Thursday effected a ₹2.50 per litre cut in prices of petrol and diesel in an effort to ease inflationary pressure and boost consumer confidence. Many Bharatiya Janata Party-ruled states also cut value-added tax (VAT) on fuel by an equivalent amount at the centre’s request. Finance minister Arun Jaitley said that out of the ₹2.50 cut, the centre will reduce excise duty by ₹1.50 per litre, while state-run fuel retailers will take a hit of ₹1 for every litre sold.