While oil prices are hovering around historic lows, to predict how that will translate into profit at some major refiners in India has never been harder.
That’s because demand for fuels disrupted by global lockdowns has become extremely difficult to forecast, according to Aditya Suresh, Macquarie Capital Ltd.’s co-head of Asian energy research, who is the top-ranked analyst for India’s biggest refiner Reliance Industries Ltd., according to Bloomberg-compiled data.
“There is no clear answer that we expect energy demand to fall,” Suresh, who has been an energy analyst for 12 years, said. “It is all a demand-led problem of forecast because you just don’t know how bad it is and that has a significant impact on utilization rates and margin assumptions.”
Analysts globally across industries are having perhaps the most challenging time ever predicting stocks performance and corporate earnings. With a growing number of companies abandoning forward guidance, analysts have little to go by. That said, forecasting energy company profits is still easier than other sectors, such as cement and consumer, due to the availability of real-time indicators such as pricing data, Suresh said.
At 49.6 per cent, refining was the biggest contributor to Reliance’s revenues at the end of 2019. Suresh has a neutral rating on Reliance with a price target of 1,135 rupees ($14.85) over the next 12 months, implying a 20 per cent fall from Friday’s close.