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India Equity Research Reports, IPO and Stock News
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Government hikes fuel prices, cuts duties: O n June 24, 2011, the Empowered
Group of Ministers (EGoM) announced to raise retail fuel prices. As expected,
the government not only took price hikes but also surprisingly re-jigged the duty
structure. The government hiked diesel price by `3/litre. Prices of cooking fuels,
LPG and Kerosene, were also hiked by `50/cylinder and `2/litre, respectively.
The resultant price hikes will help reduce under recoveries of OMCs by around
`21,000cr. The duty cuts will cost the exchequer a whopping `49,000cr.
Under recoveries to fall, but still remain high: With these measures, we now
estimate under recoveries to remain at `97,551cr in FY2012 and `73,853cr in
FY2013. We estimate the Indian crude oil basket to remain in the range of
US$95–105 in FY2012 and FY2013.
No clarity on subsidy-sharing mechanism yet: Although the government has
pegged subsidy-sharing burden of 33.0% of under recoveries for 1QFY2012,
there is still no clarity on the policy of the subsidy-sharing mechanism. Given that
crude price is at around US$100/bbl, we continue to peg FY2012 and FY2013
subsidy sharing for downstream companies at 38.7% of under recoveries.
Outlook and valuation: We anticipate ONGC’s incremental production from
marginal fields to more than offset any decline in production from the ageing
fields. OVL is also expected to report increased volumes by 2013 at ~12mn
tonnes on account of incremental productions from Myanmar, Sakhalin-1 and
Venezuela coming on stream. Deregulation of diesel and resolution of the royalty
issue with Cairn could be significantly earnings accretive for ONGC. Higher gas
price from extant fields and mark-to-market prices from incremental production
could accrete earnings further. Significant discoveries in the high-potential
Cambay, KG basin and Mahanadi fields (still under appraisal) could further boost
valuations. Although there is an FPO overhang on the stock in the near term,
we believe increased volumes and net realisation should offset these concerns.
We maintain a Buy on the stock with an SOTP-based target price of `336.
Government hikes fuel prices, cuts duties to tame mounting
under recoveries
In a meeting held on June 24, 2011, the EGoM took bold steps on the country's
retail fuel pricing after a long wait of one year. As expected, the government not
only took price hikes but also surprisingly re-jigged the duty structure. On the price
hike front, on an immediate basis, the government increased diesel price by
`3/litre; whereas the price of cooking fuels, LPG and Kerosene, were increased by
`50/cylinder and `2/litre, respectively. The resultant price hikes will help reduce
under recoveries of OMCs by around `21,000cr.
Further, to reduce the burden of under recoveries on OMCs, the government
lowered the customs duty and excise duty on crude oil and petroleum products.
Customs duty on crude oil has been reduced to nil from 5%; whereas on the petrol
and diesel front, the revised customs duty will stand at 2.5% from 7.5% earlier.
This will result in a loss of `26,000cr to the exchequer. Excise duty on diesel has
also been reduced by `2.6/litre to `2/litre, resulting into a loss of `23,000cr to the
exchequer. Thus, the duty cuts will cost the exchequer a whopping `49,000cr.
Outlook and valuation
We anticipate ONGC’s incremental production from marginal fields to more than
offset any decline in production from the ageing fields. OVL is also expected to
report increased volumes by 2013 at ~12mn tonnes on account of incremental
productions from Myanmar, Sakhalin-1 and Venezuela coming on stream.
Deregulation of diesel and resolution of the royalty issue with Cairn could be
significantly earnings accretive for ONGC. Higher gas price from extant fields and
mark-to-market prices from incremental production could accrete earnings further.
Significant discoveries in the high-potential Cambay, KG basin and Mahanadi
fields (still under appraisal) could further boost valuations.
Although there is an FPO overhang on the stock in the near term, we believe
the increase in volumes and net realisation should offset these concerns.
We maintain a Buy on the stock with an SOTP target price of `336.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Government hikes fuel prices, cuts duties: O n June 24, 2011, the Empowered
Group of Ministers (EGoM) announced to raise retail fuel prices. As expected,
the government not only took price hikes but also surprisingly re-jigged the duty
structure. The government hiked diesel price by `3/litre. Prices of cooking fuels,
LPG and Kerosene, were also hiked by `50/cylinder and `2/litre, respectively.
The resultant price hikes will help reduce under recoveries of OMCs by around
`21,000cr. The duty cuts will cost the exchequer a whopping `49,000cr.
Under recoveries to fall, but still remain high: With these measures, we now
estimate under recoveries to remain at `97,551cr in FY2012 and `73,853cr in
FY2013. We estimate the Indian crude oil basket to remain in the range of
US$95–105 in FY2012 and FY2013.
No clarity on subsidy-sharing mechanism yet: Although the government has
pegged subsidy-sharing burden of 33.0% of under recoveries for 1QFY2012,
there is still no clarity on the policy of the subsidy-sharing mechanism. Given that
crude price is at around US$100/bbl, we continue to peg FY2012 and FY2013
subsidy sharing for downstream companies at 38.7% of under recoveries.
Outlook and valuation: We anticipate ONGC’s incremental production from
marginal fields to more than offset any decline in production from the ageing
fields. OVL is also expected to report increased volumes by 2013 at ~12mn
tonnes on account of incremental productions from Myanmar, Sakhalin-1 and
Venezuela coming on stream. Deregulation of diesel and resolution of the royalty
issue with Cairn could be significantly earnings accretive for ONGC. Higher gas
price from extant fields and mark-to-market prices from incremental production
could accrete earnings further. Significant discoveries in the high-potential
Cambay, KG basin and Mahanadi fields (still under appraisal) could further boost
valuations. Although there is an FPO overhang on the stock in the near term,
we believe increased volumes and net realisation should offset these concerns.
We maintain a Buy on the stock with an SOTP-based target price of `336.
Government hikes fuel prices, cuts duties to tame mounting
under recoveries
In a meeting held on June 24, 2011, the EGoM took bold steps on the country's
retail fuel pricing after a long wait of one year. As expected, the government not
only took price hikes but also surprisingly re-jigged the duty structure. On the price
hike front, on an immediate basis, the government increased diesel price by
`3/litre; whereas the price of cooking fuels, LPG and Kerosene, were increased by
`50/cylinder and `2/litre, respectively. The resultant price hikes will help reduce
under recoveries of OMCs by around `21,000cr.
Further, to reduce the burden of under recoveries on OMCs, the government
lowered the customs duty and excise duty on crude oil and petroleum products.
Customs duty on crude oil has been reduced to nil from 5%; whereas on the petrol
and diesel front, the revised customs duty will stand at 2.5% from 7.5% earlier.
This will result in a loss of `26,000cr to the exchequer. Excise duty on diesel has
also been reduced by `2.6/litre to `2/litre, resulting into a loss of `23,000cr to the
exchequer. Thus, the duty cuts will cost the exchequer a whopping `49,000cr.
Outlook and valuation
We anticipate ONGC’s incremental production from marginal fields to more than
offset any decline in production from the ageing fields. OVL is also expected to
report increased volumes by 2013 at ~12mn tonnes on account of incremental
productions from Myanmar, Sakhalin-1 and Venezuela coming on stream.
Deregulation of diesel and resolution of the royalty issue with Cairn could be
significantly earnings accretive for ONGC. Higher gas price from extant fields and
mark-to-market prices from incremental production could accrete earnings further.
Significant discoveries in the high-potential Cambay, KG basin and Mahanadi
fields (still under appraisal) could further boost valuations.
Although there is an FPO overhang on the stock in the near term, we believe
the increase in volumes and net realisation should offset these concerns.
We maintain a Buy on the stock with an SOTP target price of `336.
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