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Oil India Ltd. ------------------------------------------------------------------- Maintain OUTPERFORM
Lower 3Q crude sales hurt
● OINL reported 3Q11 EPS of Rs38, down 1% QoQ, and 6% below
estimate. Revenues, up 1% QoQ, were 4% below estimate.
● Despite 6% headline increase in net (post subsidy) realisations,
revenues remained subdued due to a stronger (3.5%) rupee and
lower crude sales volumes (4% QoQ). 2Q sales volumes were
likely helped by inventory build at the Numaligarh refinery, which
was shut in 1Q11. 3Q numbers are likely a normalised run rate.
● Costs were also higher due to a provisional pay revision expense.
Other income was higher due to a retrospective revision of
transportation tariffs, and higher income on bank deposits.
● OINL post-subsidy realisations have increased US$4/bbl while the
gross realisation increased US$10/bbl. We note that this impact
may be exaggerated as under-recovery calculations in India lag
crude prices. 4Q subsidy payment will increase even at flat crude.
● We change our numbers marginally for 3Q. In contrast to ONGC,
OINL delivered good crude volume growth. The consequent
divergence in EPS should lead to better share performance.
OIL numbers slightly below
OIL India reported 3Q11 EPS of Rs38, 6% below our expectations
and 1% down QoQ. Revenues at Rs24 bn were flat QoQ. This,
despite the 6.3% headline net (post-subsidy payments) realisation
increase QoQ – from US$63.1/bbl to US$67.1/bbl. Some of this
notional gain was countered by a stronger rupee; which was up 3.5%
QoQ. Crude sales volumes also declined 4% QoQ (against our
expectations of a small increase). Gross crude production fell only
0.5%. This is most likely explained by the shut down of the
Numaligarh refinery in 1Q11, which, having restarted in 2Q, would
have purchased more crude to build up its inventories. 3Q sales
numbers probably reflect a more sustainable run rate for OINL. Costs
were also higher, as OINL booked a Rs940 mn provisional pay
provision – higher than that booked in 3Q10 (at Rs697 mn). This was
countered by higher other income – OINL booked Rs514 mn on
account of revision of transportation tariffs in earlier years. Additionally,
OINL’s income from bank deposits increased 74%, or Rs.819 mn QoQ.
4Q may see higher subsidy payments
As with ONGC 3Q numbers, OINL’s reported net realisations have
moved up with higher crude prices. We note, however, that this impact
is exaggerated by domestic pricing mechanisms – LPG, in India, for
example, is priced on a monthly basis. Calculated downstream losses
(and therefore upstream’s third share) therefore track crude prices
with a lag. Even if crude/USDINR remain flat, OINL/ONGC subsidy
payments should increase in 4Q11. Costs also tend to increase in 4Q,
when companies close books on wells/other activities at year end.
We update our model for 3Q numbers. FY11E EPS and target price
changes marginally.
In contrast to ONGC, OINL has delivered strong crude oil production
growth near term; outlook for production also remains strong. Given
capped realisations, this will make for differing EPS growth. Yet, OINL
share performance has tracked ONGC for some time. Continued
divergence in EPS growth should become a reason for OINL to do
better. We maintain our OUTPERFORM rating.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Oil India Ltd. ------------------------------------------------------------------- Maintain OUTPERFORM
Lower 3Q crude sales hurt
● OINL reported 3Q11 EPS of Rs38, down 1% QoQ, and 6% below
estimate. Revenues, up 1% QoQ, were 4% below estimate.
● Despite 6% headline increase in net (post subsidy) realisations,
revenues remained subdued due to a stronger (3.5%) rupee and
lower crude sales volumes (4% QoQ). 2Q sales volumes were
likely helped by inventory build at the Numaligarh refinery, which
was shut in 1Q11. 3Q numbers are likely a normalised run rate.
● Costs were also higher due to a provisional pay revision expense.
Other income was higher due to a retrospective revision of
transportation tariffs, and higher income on bank deposits.
● OINL post-subsidy realisations have increased US$4/bbl while the
gross realisation increased US$10/bbl. We note that this impact
may be exaggerated as under-recovery calculations in India lag
crude prices. 4Q subsidy payment will increase even at flat crude.
● We change our numbers marginally for 3Q. In contrast to ONGC,
OINL delivered good crude volume growth. The consequent
divergence in EPS should lead to better share performance.
OIL numbers slightly below
OIL India reported 3Q11 EPS of Rs38, 6% below our expectations
and 1% down QoQ. Revenues at Rs24 bn were flat QoQ. This,
despite the 6.3% headline net (post-subsidy payments) realisation
increase QoQ – from US$63.1/bbl to US$67.1/bbl. Some of this
notional gain was countered by a stronger rupee; which was up 3.5%
QoQ. Crude sales volumes also declined 4% QoQ (against our
expectations of a small increase). Gross crude production fell only
0.5%. This is most likely explained by the shut down of the
Numaligarh refinery in 1Q11, which, having restarted in 2Q, would
have purchased more crude to build up its inventories. 3Q sales
numbers probably reflect a more sustainable run rate for OINL. Costs
were also higher, as OINL booked a Rs940 mn provisional pay
provision – higher than that booked in 3Q10 (at Rs697 mn). This was
countered by higher other income – OINL booked Rs514 mn on
account of revision of transportation tariffs in earlier years. Additionally,
OINL’s income from bank deposits increased 74%, or Rs.819 mn QoQ.
4Q may see higher subsidy payments
As with ONGC 3Q numbers, OINL’s reported net realisations have
moved up with higher crude prices. We note, however, that this impact
is exaggerated by domestic pricing mechanisms – LPG, in India, for
example, is priced on a monthly basis. Calculated downstream losses
(and therefore upstream’s third share) therefore track crude prices
with a lag. Even if crude/USDINR remain flat, OINL/ONGC subsidy
payments should increase in 4Q11. Costs also tend to increase in 4Q,
when companies close books on wells/other activities at year end.
We update our model for 3Q numbers. FY11E EPS and target price
changes marginally.
In contrast to ONGC, OINL has delivered strong crude oil production
growth near term; outlook for production also remains strong. Given
capped realisations, this will make for differing EPS growth. Yet, OINL
share performance has tracked ONGC for some time. Continued
divergence in EPS growth should become a reason for OINL to do
better. We maintain our OUTPERFORM rating.
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