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Essar Oil ------------------------------------------------------------------------------- Maintain NEUTRAL
Higher 4Q GRM - waiting for improvements from refinery upgrade
● ESOIL reported 3Q FY11 EPS of Rs2, ahead of our estimates of
Rs1.6. The reported current price GRM was US$7.21/bbl. ESOIL
processed 3.73 MT of crude in the quarter, at an all-time high rate.
● ESOIL has booked about US$2.52/bbl of benefits from sales tax
deferral. This is up significantly QoQ due to higher refined product
prices and increased sales volumes within the state of Gujarat.
Export volumes increased due to lower domestic fuel oil
consumption – an impact of increasing domestic natural gas
volumes.
● Gas production at the Raniganj CBM block has increased to 30
kscmd. ESOIL hopes the commissioning of the compressor
station will help increase volumes near term.
● The upgrade of the refinery to 16-18 MTPA capacity and higher
complexity (11.8) is expected to complete by June, when ESOIL
will take a 35-day shutdown. ESOIL earnings post the upgrade
should improve on higher GRM. We update our model for 3Q
strength. We increase FY11/FY12E EPS to Rs4.2/6.4. Our target
price rises to Rs155 (from Rs154). Further delays to the upgrade
project are near-term risks. Maintain NEUTRAL.
ESOIL 3Q FY11 EPS of Rs2
ESOIL reported 3Q FY11 PAT of Rs2.7 bn, up 110% QoQ. The
company reported current price GRM of US$7.21, up from US$6.49 in
2Q FY11. A significant part of this increase seems to have come from
an increase in sales tax deferral benefits, which went from about
US$2/bbl levels to US$2.5/bbl in 3Q – on higher crude prices and a
higher proportion of product sales within Gujarat. Increasing crude
prices should have also led to some traditional ‘inventory gains’, which
are not reflected in the current price GRM calculations.
ESOIL processed 3.73 MT of crude in 3Q, for an all-time high run rate.
The upgrade project (to increase capacity to 16/18 MTPA and
complexity to 11.8 (on the Nelson’s scale) is expected to complete by
June 2011; having been deferred from the earlier deadline of
December 2010. ESOIL plans to take a 35-day shutdown in May/June
to commission the upgrade. Once completed, this should allow for a
material increase in ESOIL GRM and EBITDA.
We update our model for the strength in 3Q and higher expected
refinery margins. Given the low levels of earlier estimates, small
changes lead to large percentage changes in estimates. We increase
FY11/FY12E EPS to Rs.4.2/6.4. Our target price rises to Rs155 (from
Rs154). Further delays to the upgrade project are near-term risks.
Maintain NEUTRAL.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Essar Oil ------------------------------------------------------------------------------- Maintain NEUTRAL
Higher 4Q GRM - waiting for improvements from refinery upgrade
● ESOIL reported 3Q FY11 EPS of Rs2, ahead of our estimates of
Rs1.6. The reported current price GRM was US$7.21/bbl. ESOIL
processed 3.73 MT of crude in the quarter, at an all-time high rate.
● ESOIL has booked about US$2.52/bbl of benefits from sales tax
deferral. This is up significantly QoQ due to higher refined product
prices and increased sales volumes within the state of Gujarat.
Export volumes increased due to lower domestic fuel oil
consumption – an impact of increasing domestic natural gas
volumes.
● Gas production at the Raniganj CBM block has increased to 30
kscmd. ESOIL hopes the commissioning of the compressor
station will help increase volumes near term.
● The upgrade of the refinery to 16-18 MTPA capacity and higher
complexity (11.8) is expected to complete by June, when ESOIL
will take a 35-day shutdown. ESOIL earnings post the upgrade
should improve on higher GRM. We update our model for 3Q
strength. We increase FY11/FY12E EPS to Rs4.2/6.4. Our target
price rises to Rs155 (from Rs154). Further delays to the upgrade
project are near-term risks. Maintain NEUTRAL.
ESOIL 3Q FY11 EPS of Rs2
ESOIL reported 3Q FY11 PAT of Rs2.7 bn, up 110% QoQ. The
company reported current price GRM of US$7.21, up from US$6.49 in
2Q FY11. A significant part of this increase seems to have come from
an increase in sales tax deferral benefits, which went from about
US$2/bbl levels to US$2.5/bbl in 3Q – on higher crude prices and a
higher proportion of product sales within Gujarat. Increasing crude
prices should have also led to some traditional ‘inventory gains’, which
are not reflected in the current price GRM calculations.
ESOIL processed 3.73 MT of crude in 3Q, for an all-time high run rate.
The upgrade project (to increase capacity to 16/18 MTPA and
complexity to 11.8 (on the Nelson’s scale) is expected to complete by
June 2011; having been deferred from the earlier deadline of
December 2010. ESOIL plans to take a 35-day shutdown in May/June
to commission the upgrade. Once completed, this should allow for a
material increase in ESOIL GRM and EBITDA.
We update our model for the strength in 3Q and higher expected
refinery margins. Given the low levels of earlier estimates, small
changes lead to large percentage changes in estimates. We increase
FY11/FY12E EPS to Rs.4.2/6.4. Our target price rises to Rs155 (from
Rs154). Further delays to the upgrade project are near-term risks.
Maintain NEUTRAL.
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