Oil & Gas | 13 April 2016
Oil & Gas
India FY16 POL consumption growth at 8 year high of 11%
Except kerosene, all products grew at 8-25%; Gasoline/diesel at 14.5%/7.5%
Petroleum, oil and lubricants (POL) consumption grows at double digits
Total petroleum products consumption increased at ~11% in FY16 after eight
years with high growth across products (except kerosene) despite largely strong
bases in FY15.
Absolute increase in consumption in FY16 was equivalent to increase over three
years, from FY12 to FY15.
Auto fuel consumption
grew robustly at 9% driven by benign retail fuel prices.
Gasoline consumption grew at ~15% (17 year high) driven by an ~8%
reduction in average gasoline prices which would have increased usage and
some shift in new cars from diesel to gasoline.
Diesel consumption grew at ~8% (4 year high) supported by (a) ~14%
decline in average retail prices, (b) increased usage due to demand for
logistics and transportation services (utilization improved by ~10% to 75%)
and (c) increased usage of diesel backed generators in agriculture due to
deficient monsoon.
Jet fuel consumption
increased at 12% (9 year high) driven primarily by robust
increase in passenger volumes (+21% YTDFY16 till Feb-16). We expect jet fuel
consumption to continue growing robustly driven by capacity additions by
airlines.
Consumption growth in India dwarfed growth in other major consumer
countries driven by continued GDP growth. While India's diesel consumption
grew at 7.5% in CY15, China's demand declined by 0.5%. Similarly, India's
gasoline consumption grew at 15% in CY15 versus 9% in China.
IEA estimates that total petroleum consumption in India will continue to be
robust and driven by growth from transport sector. Despite contributing to 18%
of world population, India still uses only 6% of world’s primary energy.
Long term drivers for transport demand include (a) increasing ownership of
passenger cars and vehicles, (b) estimated 7.5% CAGR increase in freight
transport to 2040, (c) growth in aviation, rail and other navigation. Other factors
will include one of the highest GDP growth rates accompanied with stable
manufacturing and construction activity.
We believe that continued uptick in the consumption volumes will benefit OMCs
the most who control >90% of the petroleum product distribution. We have a
Buy rating on HPCL, BPCL and IOCL.
Auto fuels supported by benign retail prices and improving fundamentals
Expect robust consumption growth to continue driven by transport sector
Strong consumption growth to benefits OMCs the most
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Harshad Borawake
(HarshadBorawake@MotilalOswal.com); +91 22 3982 5432
Rajat Agarwal
(Rajat.Agarwal@MotilalOswal.com); +91 22 3982 5558
13 April 2016
1
Motilal Oswal research is available on
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Oil & Gas
Total consumption
increased by more than
11% YoY in FY16 led by
~15% growth in gasoline
and ~8% growth in diesel
Exhibit 1: India total consumption (mmt) grew at double digits after 8 years
MMT
India - Petroleum Products Consumption
11.9%
9.1%
107
-1.0%
116
2.4%
3.1%
3.2%
4.3%
0.7%
4.3%
130
133
137
142
148
157
6.1%
158
YoY (%)
165
183
11.2%
Source: MoPNG, MOSL
Diesel consumption grew by
7.5% led by lower retail
prices, higher volumes in
transportation and
increased usage of diesel
backed generators due to
deficient monsoons
Exhibit 2: Absolute diesel volume growth (mmt) in FY16 was 5x the growth in FY15
MMT
11.2%
6.8%
42.8
47.6
8.5%
51.7
Diesel
60.1
6.7%
YoY (%)
64.7
7.8%
69.1
68.4
69.4
74.6
56.3
9.0%
6.7%
-1.0%
1.5%
7.5%
Source: MoPNG, MOSL
Exhibit 3: Reliance on diesel set generators reflects in high correlation between power
deficit and diesel demand
Diesel Demand (% Chg YoY)
30%
20%
10%
0%
-10%
Base Power Deficit (%) - RHS in reverse order
-16%
-11%
-6%
-1%
4%
Source: CEA, MOSL
13 April 2016
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Oil & Gas
Exhibit 4: Diesel consumption volumes show high correlation with HCV/LCV sales volume
HCV/LCV Sales ('000)
250.0
200.0
150.0
100.0
50.0
0.0
1QFY07
3QFY08
1QFY10
3QFY11
1QFY13
3QFY14
1QFY16
Diesel Sales (kbpd) with one quarter lag - RHS
2,000.0
1,500.0
1,000.0
500.0
0.0
Source: Industry, SIAM, MoPNG, MOSL
Exhibit 5: Gasoline consumption (mmt) grew at ~15% and in double digits for the second
consecutive year in FY16 despite a stronger base
Gasoline consumption
increased by 14.5% driven
by increased usage of
personal vehicles from
public transport and
preference for petrol driven
vehicles
MMT
Gasoline
YoY (%)
19.1
21.8
11.1%
7.5%
9.3
10.3
9.0%
11.3
13.9%
12.8
10.8%
15.0
15.7
17.1
14.5%
11.4%
8.8%
14.2
5.6%
5.0%
Source: MoPNG, MOSL
Exhibit 6: Petrol consumption change shows high correlation with 2 wheeler sales volumes
Petrol Demand - 3M avg. (% Chg YoY)
20%
14%
7%
1%
-6%
2 Wheeler Sales (% Chg YoY) - RHS
78%
54%
30%
6%
-18%
Source: Industry, SIAM, MoPNG, MOSL
13 April 2016
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Oil & Gas
Exhibit 7: Bitumen consumption grew at double digits after a period of more than 8 years
Bitumen consumption
growth was driven by daily
highways/road construction
of 20 kms daily
Indian roads transport 60%
of total goods and 85% of
passenger traffic..
MMT
9.9%
3.8
4.5
4.7
4.4%
4.9
4.4%
-7.3%
4.6
5.6%
1.6%
1.0%
0.9%
17.4%
Bitumen
4.6
YoY (%)
4.7
4.9
5.0
5.8
16.7%
Source: MoPNG, MOSL
Exhibit 8: LPG consumption continued to
increased preference of LPG to Kerosene…
MMT
15.0%
LPG
YoY (%)
grow
due
Exhibit 9: …resulting in a simultaneous decline in Kerosene
consumption
MMT
Kerosene
YoY (%)
0.1% -0.3% -0.5%0.0%
10.3%
8.6% 8.2%
7.2%
4.7%
1.6%
9.4
9.4
9.3
9.3
8.9
8.5%
-4.0%
-4.5%
-1.1%
-3.7%
4.9%
1.6%
-7.8% -8.8%
8.2
7.2
7.1
6.8
10.4 12.0 12.2 13.2 14.3 15.4 15.6 16.3 18.0 19.6
7.5
Source: MoPNG, MOSL
Source: MoPNG, MOSL
Exhibit 10: Jet fuel consumption grew at double digits driven
by sustained growth in India’s fleet size
MMT
21.5%
13.7%
9.8% 9.0%
3.9%
-2.2%
4.4%
-4.8%
5.1
5.5
5.3
5.5
5.6
6.2
1.3%
11.5%
Jet Fuel
YoY (%)
Exhibit 11: Naphtha consumption growth turned positive
due to higher demand by petrochemicals and fertilizer
sectors
MMT
28.4%
3.4%
10.7%
4.4% 4.0%
-6.8% -4.5%
Naphtha
YoY (%)
22.5%
-3.4%
4.0
4.6
4.5
4.6
12.3
-26.3%
13.9 13.4 13.9 10.2 10.7 11.1
11.5 10.9 13.4
Source: MoPNG, MOSL
Source: MoPNG, MOSL
13 April 2016
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Oil & Gas
Exhibit 12: Weightage of auto fuels (HSD, MS) in total products up from ~50% in FY07 to
65% in FY16
HSD
0
12
9
14
10
9
42
0
12
9
12
11
9
43
MS
0
11
8
12
11
10
45
LPG
0
10
8
9
11
11
Naptha
0
9
7
9
12
11
SKO
0
7
6
9
12
12
FO & LSHS
0
6
6
9
12
12
ATF
0
5
5
9
12
13
Others
0
4
5
8
13
14
0
4
5
9
13
15
48
48
50
52
52
51
50
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
Source: MoPNG, MOSL
Exhibit 13: Transport sector accounts for 70% of India’s
diesel demand (%)
Cars/UVs -
Private
13.2%
Mobile
tower
1.5%
Others
5.0%
Gensets
10.5%
HCV/LCV
28.3%
Cars/UVs -
Comm.
8.9%
Buses
9.6%
3-wheelers
6.4%
Railways
3.2%
Agriculture
13.0%
Aviation/shi
pping
0.5%
Exhibit 14: Two-wheelers account for 61% of India’s petrol
demand (5)
3-wheelers
2.3%
SUVs
1.5%
Others
0.4%
Cars
34.3%
2-wheelers
61.4%
Source: Industry, MoPNG, MOSL
Source: Industry, MoPNG, MOSL
Exhibit 15: Historically, total product consumption growth has shown high a co-relation
with GDP growth
With future GDP growth
expectations at more than
7%, petroleum product
consumption can be
expected to continue its
high growth rates
12%
8%
4%
0%
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
Petroleum Product Demand Growth (%) - 1 Yr lag
GDP Growth (%)
Source: CMIE, MoPNG, MOSL
13 April 2016
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