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Essar Oil Ltd. Overweight
ESRO.BO, ESOIL IN
4QFY11: Strong GRMs drive profit growth
• GRMs drive 4Q growth: ESOIL reported 4Q profit of Rs3.21bn (up
78% y/y and 18% q/q) as ESOIL benefitted from strengthening product
cracks, particularly diesel.
• GRMs strengthen: ESOIL reported 4Q GRMs of $8.15/bbl (vs.
$7.21/bbl in 3Q; including $2.86/bbl sales tax benefit) as product cracks,
particularly diesel, continued to strengthen. With Asian demand
remaining strong, diesel spreads are likely to stay elevated in the coming
months. With the refinery expansion expected to be completed by
2QFY12, the rise in complexity is expected to enable ESOIL to earn
higher refining margins.
• Throughput remains robust: ESOIL achieved a throughput of
14.76MMT in FY11, a utilization rate of ~140%. The refinery expansion
project remains on track to be commissioned by 2QFY12, and will see
capacity rise to 18MMT, with further planned optimization taking
capacity to 20MMT by Sep-12. The expansion, along with the rise in
complexity will help ESOIL optimize its product slate and enable higher
margins, in our view.
• Raniganj closer to commercialization: The Raniganj gas field is closer
to commercialization, with the govt. approving a provisional gas price of
$6.75/mmbtu (includes ~$1/mmbtu transportation cost). The govt. is also
considering a policy for pricing/allocation of CBM gas. The pipeline to
Durgapur is PNGRB approved, and environmental clearances are
expected shortly.
• Price target, valuations and key risks: We maintain our Overweight
stance, and Mar-12 price target of Rs160, based on 8x EV/EBITDA for
the main refining business, and an NPV value for the Raniganj asset and
income/sales tax benefits. We do not ascribe any value to E&P potential,
retail upsides. Key risks to our call are a delay in the refinery expansion
project and an economic slowdown affecting the cyclical refining
business.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Essar Oil Ltd. Overweight
ESRO.BO, ESOIL IN
4QFY11: Strong GRMs drive profit growth
• GRMs drive 4Q growth: ESOIL reported 4Q profit of Rs3.21bn (up
78% y/y and 18% q/q) as ESOIL benefitted from strengthening product
cracks, particularly diesel.
• GRMs strengthen: ESOIL reported 4Q GRMs of $8.15/bbl (vs.
$7.21/bbl in 3Q; including $2.86/bbl sales tax benefit) as product cracks,
particularly diesel, continued to strengthen. With Asian demand
remaining strong, diesel spreads are likely to stay elevated in the coming
months. With the refinery expansion expected to be completed by
2QFY12, the rise in complexity is expected to enable ESOIL to earn
higher refining margins.
• Throughput remains robust: ESOIL achieved a throughput of
14.76MMT in FY11, a utilization rate of ~140%. The refinery expansion
project remains on track to be commissioned by 2QFY12, and will see
capacity rise to 18MMT, with further planned optimization taking
capacity to 20MMT by Sep-12. The expansion, along with the rise in
complexity will help ESOIL optimize its product slate and enable higher
margins, in our view.
• Raniganj closer to commercialization: The Raniganj gas field is closer
to commercialization, with the govt. approving a provisional gas price of
$6.75/mmbtu (includes ~$1/mmbtu transportation cost). The govt. is also
considering a policy for pricing/allocation of CBM gas. The pipeline to
Durgapur is PNGRB approved, and environmental clearances are
expected shortly.
• Price target, valuations and key risks: We maintain our Overweight
stance, and Mar-12 price target of Rs160, based on 8x EV/EBITDA for
the main refining business, and an NPV value for the Raniganj asset and
income/sales tax benefits. We do not ascribe any value to E&P potential,
retail upsides. Key risks to our call are a delay in the refinery expansion
project and an economic slowdown affecting the cyclical refining
business.
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