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• Emkay Global Financial Services has come with its December quarterly earning estimates for Oil and Gas sector. According to the research firm, For Q3FY12, under-recoveries on sale of HSD, SKO and LPG have increased to Rs.300bn as against Rs.214bn in Q2FY12.For Q3FY12, under-recoveries on sale of HSD, SKO and LPG have increased to Rs.300bn as against Rs.214bn in Q2FY12. Although oil prices have marginally averaged lower QoQ, under-recoveries have increased on account of weak rupee averaging at Rs50.8/$ in Q3FY12 as against Rs45.8/$ in Q2FY12.

• There is no clarity on the subsidy sharing mechanism. However for our estimates, we assume 33.3% sharing by upstream companies (Rs.99bn). We also and account for 1HFY12 support of Rs150bn for OMCs announced by government in 3QFY12. During the quarter, the benchmark refining margins declined to US$6.25/bbl, compared to US$8.8/bbl in 2QFY12 mainly on account of decline in gasoline and naphtha cracks. Also petchem margins too declined sequentially during the quarter on the back of weak demand.For RIL, we factor in lower GRMs for YoY and QoQ at US$7/bbl, on the back of decline in benchmark Singapore refining margins and in light-heavy crude oil differential.

• Although rupee depreciation would benefit RIL as its product realisations are linked to dollar, decline in core margins for both refining and petchem would result in lower profitability sequentially and highlight possibility of a negative surprise to our net profit estimate of Rs52bn.Natural Gas universe likely to report revenue and profit growth of 27.8% and 7% YoY, respectively, primarily driven by higher realisation from Petronet LNG, IGL and Gujarat Gas. Natural gas universe likely to report EBIDTA growth of 16.4% YoY.

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