Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The Finance ministry has announced a final subsidy contribution of Rs200bn for 4QFY11, in line
with the budget provision and our expectations. Given the higher GRM and inventory gains, we
believe this contribution will enable the weakest OMC (HPCL) to earn 11-12% ROE.
The finance ministry has announced a final subsidy contribution of Rs200bn for 4QFY11. This
amount was already disclosed in the Union Budget as provision for FY12. Hence, this amount
is in line with our expectations and will be paid as and when the Budget is approved by
Parliament.
The government contribution for subsidy for 9mFY11 of Rs210bn has already been paid in
cash to the oil marketing companies (OMCs) in March 2011.
FY11 total under-recoveries are estimated to be Rs778bn. Assuming one-third contribution
from the upstream sector (Rs259bn) and the government contribution of Rs410bn, we
estimate that the under-recovery borne by the OMCs is Rs109bn or 13%. We estimate that
normative margins included in the under-recovery figure would be Rs158bn and hence a net
Rs49bn would be the profit from marketing of retail products in FY11.
Note that the above under-recovery figures do not include under-recovery on petrol in
2HFY11 which is estimated at Rs23bn for the industry. As we have indicated earlier, the
OMCs have asked for the upstream companies to bear 100% of this additional amount.
We believe that if the petrol under-recovery is fully compensated by the upstream companies,
then the above government contribution should allow the weakest OMC (HPCL) to earn
around 11-12% ROE.
The under-recovery borne by the OMCs of 13-14% may seem high relative to street
expectations and even our estimates made six months back. However, our thesis has always
been that the final figure borne by the OMCs would be such that HPCL makes an ROE of 11-
12%. The industry is likely to report robust refining margins and record inventory gains in
4QFY11. To the extent that both these elements provide additional support, the need for
government contribution would accordingly drop.
In any case, the focus is quickly going to move to FY12 with under-recoveries likely to be
around double of FY11 if current oil prices sustain and if domestic price hikes are in line with
past trends (maximum Rs2-3/litre for diesel).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The Finance ministry has announced a final subsidy contribution of Rs200bn for 4QFY11, in line
with the budget provision and our expectations. Given the higher GRM and inventory gains, we
believe this contribution will enable the weakest OMC (HPCL) to earn 11-12% ROE.
The finance ministry has announced a final subsidy contribution of Rs200bn for 4QFY11. This
amount was already disclosed in the Union Budget as provision for FY12. Hence, this amount
is in line with our expectations and will be paid as and when the Budget is approved by
Parliament.
The government contribution for subsidy for 9mFY11 of Rs210bn has already been paid in
cash to the oil marketing companies (OMCs) in March 2011.
FY11 total under-recoveries are estimated to be Rs778bn. Assuming one-third contribution
from the upstream sector (Rs259bn) and the government contribution of Rs410bn, we
estimate that the under-recovery borne by the OMCs is Rs109bn or 13%. We estimate that
normative margins included in the under-recovery figure would be Rs158bn and hence a net
Rs49bn would be the profit from marketing of retail products in FY11.
Note that the above under-recovery figures do not include under-recovery on petrol in
2HFY11 which is estimated at Rs23bn for the industry. As we have indicated earlier, the
OMCs have asked for the upstream companies to bear 100% of this additional amount.
We believe that if the petrol under-recovery is fully compensated by the upstream companies,
then the above government contribution should allow the weakest OMC (HPCL) to earn
around 11-12% ROE.
The under-recovery borne by the OMCs of 13-14% may seem high relative to street
expectations and even our estimates made six months back. However, our thesis has always
been that the final figure borne by the OMCs would be such that HPCL makes an ROE of 11-
12%. The industry is likely to report robust refining margins and record inventory gains in
4QFY11. To the extent that both these elements provide additional support, the need for
government contribution would accordingly drop.
In any case, the focus is quickly going to move to FY12 with under-recoveries likely to be
around double of FY11 if current oil prices sustain and if domestic price hikes are in line with
past trends (maximum Rs2-3/litre for diesel).
No comments:
Post a Comment