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Good times ahead…
Oil marketing companies (OMCs) have underperformed the benchmark
indices in the last six months (declining 27-37% vis-à-vis a 11% fall in
the Sensex) due to increase in crude oil prices. We believe the current
stock prices have discounted the higher crude oil prices. We expect
crude oil prices to moderate post easing of geo-political tensions in the
Middle East and North Africa (MENA) region, which offers an
investment opportunity at current levels. We are initiating coverage on
OMC stocks with a BUY rating.
Crude oil prices to correct, post easing of geo-political tensions
The recent unrest in the MENA region and severe cold weather in the US
and Europe led to Brent crude oil prices breaching US$115 per barrel. We
believe Brent crude oil prices, post easing of geo-political tensions, would
be in the range of US$85-95 per bbl over the next two years vs. US$ 77.2
per bbl in CY09. In the base case scenario, we have assumed Brent crude
oil prices at US$85 per bbl for FY12E and FY13E.
Higher refining margins augurs well for OMCs
The gross refining margins (GRMs) have increased recently on the back of
economic revival across the globe. We believe domestic OMCs would be
the beneficiaries of this upturn mainly on account of recent upgradation
and expansion of refining capacity by companies. Furthermore, additional
capacity coming on stream would augur well for the OMCs.
Factoring in worst case scenario for subsidy sharing burden
We have projected EPS for the OMCs considering the worst case scenario
for subsidy sharing burden (government - 50%, upstream companies -
33.3% and balance 16.7% - OMCs). BPCL, HPCL and IOC’s EPS would
increase to | 56.9, | 47.4 and | 34.3, respectively, in FY13E in case of
54.5% subsidy sharing by the government, 33.3% by the upstream
companies and the balance 12.2% by OMCs at US$85 per bbl.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Good times ahead…
Oil marketing companies (OMCs) have underperformed the benchmark
indices in the last six months (declining 27-37% vis-à-vis a 11% fall in
the Sensex) due to increase in crude oil prices. We believe the current
stock prices have discounted the higher crude oil prices. We expect
crude oil prices to moderate post easing of geo-political tensions in the
Middle East and North Africa (MENA) region, which offers an
investment opportunity at current levels. We are initiating coverage on
OMC stocks with a BUY rating.
Crude oil prices to correct, post easing of geo-political tensions
The recent unrest in the MENA region and severe cold weather in the US
and Europe led to Brent crude oil prices breaching US$115 per barrel. We
believe Brent crude oil prices, post easing of geo-political tensions, would
be in the range of US$85-95 per bbl over the next two years vs. US$ 77.2
per bbl in CY09. In the base case scenario, we have assumed Brent crude
oil prices at US$85 per bbl for FY12E and FY13E.
Higher refining margins augurs well for OMCs
The gross refining margins (GRMs) have increased recently on the back of
economic revival across the globe. We believe domestic OMCs would be
the beneficiaries of this upturn mainly on account of recent upgradation
and expansion of refining capacity by companies. Furthermore, additional
capacity coming on stream would augur well for the OMCs.
Factoring in worst case scenario for subsidy sharing burden
We have projected EPS for the OMCs considering the worst case scenario
for subsidy sharing burden (government - 50%, upstream companies -
33.3% and balance 16.7% - OMCs). BPCL, HPCL and IOC’s EPS would
increase to | 56.9, | 47.4 and | 34.3, respectively, in FY13E in case of
54.5% subsidy sharing by the government, 33.3% by the upstream
companies and the balance 12.2% by OMCs at US$85 per bbl.
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