Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India: Energy
Equity Research
Diesel and gasoline retail price hikes on the card; Buy HPCL, ONGC
News
According to Economic Times (May 4), the Indian government is planning
to hike gasoline and diesel prices by Rs3/litre after the provincial elections
are completed next week, representing about a 5% and 8% increase,
respectively, in their retail prices. The decision regarding the price changes
are likely to be taken on May 11, during the meeting of the Empowered
Group of Ministers (EGoM). The article further mentioned that an increase
in domestic LPG prices could also be discussed at the EGoM meeting. This
follows statements made yesterday by the central bank governor that fuel
price increases are needed to control the fiscal deficit.
Analysis
Although this potential price increase falls well short of the current loss of
Rs8.50/lit on gasoline and Rs18/lit on diesel, we note that this would be the
first increase in retail fuel prices in India since January 16, 2011. The Indian
basket of oil prices has increased by around 25% during this period.
We believe that, post elections, we will move towards a more favourable
regulatory phase for the sector that will likely be marked by more frequent
fuel price hikes. While full de-regulation of diesel prices would take time,
in our view, owing to the prevailing high oil prices and high inflation, we
note that the current fuel losses are unsustainable and would likely strain
the government’s fiscal targets. We estimate FY12E gross under-recoveries
to reach Rs1388bn, at average oil price of US$102.5/bbl, if there is no retail
price hikes. This will peg the government’s FY12E cash subsidy between
Rs694bn-Rs916bn, assuming it will bear 50%-66% of the total underrecovery, compared to a budgetary provision of only Rs234bn.
HPCL/ONGC are our top picks, followed by IOC and GAIL
We believe HPCL (Buy, on CL) is the largest beneficiary of regulatory action
on fuel prices, with the highest sales/refining volume ratio (FY12E:1.6x)
among the OMCs. Our 12-m EV/EBITDA-based TP of Rs450 implies 16%
potential upside. We also like ONGC (Buy, on CL) owing to stable-toimproving oil realization, improving volume growth, and attractive
valuation. We are 9%-17% ahead of Bloomberg consensus for FY12E-13E
earnings on ONGC. Our 12-m Director’s Cut-based TP of Rs360 implies 16%
potential upside. Key risks: oil price spike, further rise in inflation, delay in
further reforms.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India: Energy
Equity Research
Diesel and gasoline retail price hikes on the card; Buy HPCL, ONGC
News
According to Economic Times (May 4), the Indian government is planning
to hike gasoline and diesel prices by Rs3/litre after the provincial elections
are completed next week, representing about a 5% and 8% increase,
respectively, in their retail prices. The decision regarding the price changes
are likely to be taken on May 11, during the meeting of the Empowered
Group of Ministers (EGoM). The article further mentioned that an increase
in domestic LPG prices could also be discussed at the EGoM meeting. This
follows statements made yesterday by the central bank governor that fuel
price increases are needed to control the fiscal deficit.
Analysis
Although this potential price increase falls well short of the current loss of
Rs8.50/lit on gasoline and Rs18/lit on diesel, we note that this would be the
first increase in retail fuel prices in India since January 16, 2011. The Indian
basket of oil prices has increased by around 25% during this period.
We believe that, post elections, we will move towards a more favourable
regulatory phase for the sector that will likely be marked by more frequent
fuel price hikes. While full de-regulation of diesel prices would take time,
in our view, owing to the prevailing high oil prices and high inflation, we
note that the current fuel losses are unsustainable and would likely strain
the government’s fiscal targets. We estimate FY12E gross under-recoveries
to reach Rs1388bn, at average oil price of US$102.5/bbl, if there is no retail
price hikes. This will peg the government’s FY12E cash subsidy between
Rs694bn-Rs916bn, assuming it will bear 50%-66% of the total underrecovery, compared to a budgetary provision of only Rs234bn.
HPCL/ONGC are our top picks, followed by IOC and GAIL
We believe HPCL (Buy, on CL) is the largest beneficiary of regulatory action
on fuel prices, with the highest sales/refining volume ratio (FY12E:1.6x)
among the OMCs. Our 12-m EV/EBITDA-based TP of Rs450 implies 16%
potential upside. We also like ONGC (Buy, on CL) owing to stable-toimproving oil realization, improving volume growth, and attractive
valuation. We are 9%-17% ahead of Bloomberg consensus for FY12E-13E
earnings on ONGC. Our 12-m Director’s Cut-based TP of Rs360 implies 16%
potential upside. Key risks: oil price spike, further rise in inflation, delay in
further reforms.
No comments:
Post a Comment