Oil and gas sector contributes Rs 3.4 trillion to govt kitty in H1FY24 The country’s petroleum sector contributed Rs 3.41 trillion to the exchequer in the first half of the current financial year, down 4.6% on year, according to the latest data released by the Petroleum Planning and Analysis Cell. Of this, the sector contributed Rs 1.85 trillion to the centre and Rs 1.56 lakh crore to the states. The amounts paid includes excise duty, customs duty, royalty rates on crude oil, corporate/income tax, service tax, cess on crude oil, and such other cess and surcharges on petroleum products. In the first half of the previous financial year 2022-23, India’s oil and gas sector had contributed Rs 3.57 trillion to the exchequer which included Rs 1.97 lakh crore and Rs 1.60 trillion to the central and state exchequer respectively. In FY22, the contribution to the exchequer stood at Rs 7.74 trillion. The exchequer received Rs 1.41 trillion as sales tax from across states and union territories in the first six months of the current fiscal. The central government has levied an excise duty of Rs 1.24 trillion on the sector from April to September compared to the excise duty of Rs 2.88 trillion in FY23, the data showed. In May 2022, the central government had reduced the excise duty on petrol by Rs 8 per litre and on diesel by Rs 6 per litre to keep a check on the high fuel prices. It has also levied an additional basic excise duty of Rs 2 per litre on unblended petrol intended for retail sale from November 2022. Even after a surge in the global crude oil prices post the Russia-Ukraine war, the oil marketing companies had kept the auto fuel prices unchanged. However, latest reports suggest that the government is likely to cut the prices of petrol and diesel to the tune of Rs 4-6 per litre owing to lower crude prices in the global markets presently. Crude oil prices have been trading in the lower range of $73-78 per barrel currently after touching their highest level of $97 per barrel in September. Even if this happens, the price cut is unlikely to impact the profitability of OMCs but bring their marketing margins closer to normative levels, analysts say. “Currently, the diesel and petrol gross marketing margins of OMCs are high at Rs 6 and Rs 11 per litre respectively, much higher than the normative level of Rs 3 and Rs 4 per litre each, hence a Rs4-6 per litre cut at retail level would essentially bring their margins closer to normative levels, without hitting their profitability as such,” Madhavi Arora, Lead Economist at Emkay Global had said.
Services miss estimates; Software better than expected: Services business grew 0.6% q-o-q cc and missed HCLT’s Q3FY23 guidance, mainly due to a 3.8% q-o-q cc decline in the ER&D segment. Growth in the IT&BS segment moderated slightly to 1.6% q-o-qcc but was in line with estimates. BFSI and Life Sciences were the key growth drivers, while communications were the drag among verticals. Growth was led by the Americas region, while Europe and ROW posted declines.
Decline in bookings reflects delays in decision-making: HCLT won 10 large deals in services and three large deals in Software with net-new deal TCV of $2.1bn, down 8% y-o-y. Deal wins were driven by the services portfolio, were centered on cost optimisation and vendor consolidation and came mainly from BFSI, manufacturing and Life Sciences verticals. Management highlighted a ramp-down in discretionary spending in Hitech and communications verticals but pointed to a strong deal pipeline.
FY24 guidance in line with expectations: HCLT has guided for 6-8% y-o-y growth for overall business and 6.5-8.5% y-o-y cc growth in services segment and 18-19% margins in FY24—all in line with our assumptions. We maintain our FY24-25 cc revenue growth and margin estimates and expect HCLT to deliver 6.5% cc revenue growth and 18.4% margins in FY24. However, we lower our earnings forecasts by 2% to factor the higher tax rate indicated by the management.
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Raise PT: HCLT has fared better in Q4, particularly in North America and BFSI, unlike its peers. However, rising demand uncertainty as a US recession nears remains a concern. HCLT’s stock at CMP trades at 17x PE and offers a 5% yield, which in our view should limit downsides and derating. Hence, we raise our target PE to 17x (16x earlier) and raise our PT to Rs 1,125, offering 8% potential upside.