Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Fuelling hopes
Although delayed, the government’s 9-20% hike for diesel, cooking fuels
has been chunkier than expected; state-owned oil companies will be the
biggest gainers, given 6-57% upgrade to FY13 EPS. Hopes on positive
policy actions will start to revive, but with the overhang of inflation, fiscal
slippage and a shaky global outlook, strong follow-through is essential for
a broader market re-rating. Our model portfolio remains largely defensive
and are top BUYs remain Dr Reddy’s, ICICI, JPA, M&M and RIL. Play
‘hope’ through well established players like BHEL, Coal India, IDFC, JPA,
L&T and ONGC.
Chunky fuel price hike
q After a month of prevarication, the government has announced a set of actions to
curb the under-recoveries of PSU oil marketers struggling with high crude prices.
q Prices have been hiked 9% for diesel, 20% for LPG, 14% for kerosene. With cuts in
import/excise duty as well, FY12 under-recoveries should reduce by US$10bn.
q The integrated R&Ms BPCL, HPCL and IOC will see FY13 EPS upgrades of 23-57%,
but ONGC, OIL, GAIL too will see EPS rising 6-39% from our earlier estimate.
q We prefer the upstream stocks; ONGC has been upgraded to BUY with TP of Rs375.
R&Ms’ return ratios and cashflows will remain under pressure in the medium term.
A positive step, but macro environment remains challenging
q The price hikes will translate into one-shot 0.6ppt rise in WPI inflation, but the
overall impact is likely to be higher, as freight rates move up on higher diesel cost.
q With WPI inflation still at +9%, we see the 50bps more in rate hikes by the RBI.
q While the c.US$9bn revenue loss arising from the tax cuts can be made up by
higher income from the PSUs and lower subsidy share (we assume 55% now), the
fiscal accounts remain underprovided for at least Rs355bn f subsidy burden.
q Uncertainty in US, EU financial markets will weigh on equity risk premiums.
Can fuel reform hopes, but follow through will be essential
q The fuel price action is a pleasant break from a phase of virtual policy paralysis.
q Quick decisions on a few issues pending approval/legislation – like Cairn-Vedanta,
coal blocks, FDI in retail, land acquisition – can give the government a face-lift.
q Based on precedent (1H 2010), the distractions on the political front and the
challenging macro environment, it looks premature to assume this will happen.
q We maintain a relatively defensive stance in our model portfolio
Play ‘hope’ through well established franchises
q L&T, ONGC, BHEL, IDFC, JPA & Coal India are positively geared to any acceleration
in policy actions, but upside potential is strong even in the base case.
q Our O-WT on industrials has been driven by these bottoms-up opportunities.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Fuelling hopes
Although delayed, the government’s 9-20% hike for diesel, cooking fuels
has been chunkier than expected; state-owned oil companies will be the
biggest gainers, given 6-57% upgrade to FY13 EPS. Hopes on positive
policy actions will start to revive, but with the overhang of inflation, fiscal
slippage and a shaky global outlook, strong follow-through is essential for
a broader market re-rating. Our model portfolio remains largely defensive
and are top BUYs remain Dr Reddy’s, ICICI, JPA, M&M and RIL. Play
‘hope’ through well established players like BHEL, Coal India, IDFC, JPA,
L&T and ONGC.
Chunky fuel price hike
q After a month of prevarication, the government has announced a set of actions to
curb the under-recoveries of PSU oil marketers struggling with high crude prices.
q Prices have been hiked 9% for diesel, 20% for LPG, 14% for kerosene. With cuts in
import/excise duty as well, FY12 under-recoveries should reduce by US$10bn.
q The integrated R&Ms BPCL, HPCL and IOC will see FY13 EPS upgrades of 23-57%,
but ONGC, OIL, GAIL too will see EPS rising 6-39% from our earlier estimate.
q We prefer the upstream stocks; ONGC has been upgraded to BUY with TP of Rs375.
R&Ms’ return ratios and cashflows will remain under pressure in the medium term.
A positive step, but macro environment remains challenging
q The price hikes will translate into one-shot 0.6ppt rise in WPI inflation, but the
overall impact is likely to be higher, as freight rates move up on higher diesel cost.
q With WPI inflation still at +9%, we see the 50bps more in rate hikes by the RBI.
q While the c.US$9bn revenue loss arising from the tax cuts can be made up by
higher income from the PSUs and lower subsidy share (we assume 55% now), the
fiscal accounts remain underprovided for at least Rs355bn f subsidy burden.
q Uncertainty in US, EU financial markets will weigh on equity risk premiums.
Can fuel reform hopes, but follow through will be essential
q The fuel price action is a pleasant break from a phase of virtual policy paralysis.
q Quick decisions on a few issues pending approval/legislation – like Cairn-Vedanta,
coal blocks, FDI in retail, land acquisition – can give the government a face-lift.
q Based on precedent (1H 2010), the distractions on the political front and the
challenging macro environment, it looks premature to assume this will happen.
q We maintain a relatively defensive stance in our model portfolio
Play ‘hope’ through well established franchises
q L&T, ONGC, BHEL, IDFC, JPA & Coal India are positively geared to any acceleration
in policy actions, but upside potential is strong even in the base case.
q Our O-WT on industrials has been driven by these bottoms-up opportunities.
No comments:
Post a Comment