Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Oil India (OINL)
Energy
Higher subsidy impacts 4QFY11 results. OIL reported weak 4QFY11 EBITDA at `9.4
bn (-29% qoq, +33% yoy), versus our `9.8 bn estimate led by government’s decision to
increase the share of gross under-recoveries for upstream companies to 38.7% for
FY2011. However, we maintain our ADD rating on the stock noting 19% potential
upside to our revised 12-month target price of `1,515 (`1,540 previously). We find
OIL’s current valuations attractive with the stock trading at 9X FY2012E EPS and 2.9X
FY2012E EV/EBITDA. Key downside risk stems from higher-than-expected subsidy loss.
4QFY11 net income at `5.6 bn (+31% yoy, -38% qoq); our estimate was `6.1 bn
OIL reported 4QFY11 weak net income at `5.6 bn (+31% yoy, -38% qoq), versus our estimate of
`6.1 bn. The variance versus our estimate reflects (1) lower gas sales at 465 mcm (-2.9% qoq and
+4.1% yoy) versus our expected 499 mcm, (2) modestly lower net realization at US$52.9/bbl
versus our expected US$53.3/bbl and (3) higher-than-expected DD&A cost at `3.4 bn. Reported
EBITDA was at `9.4 bn (-29% qoq, +33% yoy); lower qoq EBITDA reflects higher subsidy burden,
which resulted in lower net realized price at US$52.9/bbl (-US$0.4/bbl yoy, -US$14.2/bbl qoq).
A decent quarter operationally, but higher subsidy impacts bottom line
OIL had a decent 4QFY11 operationally with improvement in crude oil sales volumes to 0.95 mn
tons versus 0.91 mn tons in 3QFY11 and 0.85 mn tons in 4QFY10. However, gas sales were lower
at 465 mcm versus 479 mcm in 3QFY11 and 447 mcm in 4QFY10. However, earnings were
impacted by the high subsidy burden due to the government’s decision to increase the share of
upstream companies to 38.7% of the gross under-recoveries for FY2011. OIL’s 4QFY11 subsidy
burden was `16.1 bn versus `5.6 bn in 3QFY11 and `6.7 bn in 4QFY10.
Attractive valuations versus ad hoc subsidy-sharing mechanism
We maintain our ADD rating on OIL given (1) potential upside of 19% to our revised target price
of `1,515 based on 10X FY2013E adjusted EPS plus the value of investments and (2) compelling
valuation given the stock is trading at 9X FY2012E EPS and 2.9X FY2012E EV/EBITDA. We
highlight that the current valuations and earnings are depressed reflecting an ad hoc subsidysharing
mechanism. Even on current depressed earnings (FY2011E basis) the stock trades at 10X
EPS adjusted for the value of its equity investments. We note that the current stock price is
reflecting 43% sharing by upstream companies, which seems unlikely.
Fine-tuned FY2012-14E EPS estimates
We have revised our FY2012-14E EPS to `141 (+1.6%), `148 (-1.6%) and `180 (+0.5%) to reflect
(1) 4QFY11 results and (2) other minor changes.
Net realized price for crude oil. OIL’s 4QFY11 net realized crude price was US$52.9/bbl
versus US$67.1/bbl in 3QFY11 and US$53.3/bbl in 4QFY10. OIL’s subsidy burden in
4QFY11 was `16.1 bn or US$51.1/bbl in crude price oil equivalent terms versus crude
price equivalent of US$18.5/bbl in 3QFY11 and US$22.4/bbl in 4QFY10. Net realized
crude oil price was US$58.5/bbl in FY2011 versus US$56.2/bbl in FY2010.
Increase in crude sales volumes. 4QFY11 crude sales volume increased 12.2% yoy and
4.1% qoq to 0.95 mn tons. FY2011 crude sales volumes increased 0.8% yoy to 3.59 mn
tons.
Decline in gas sales volumes qoq. 4QFY11 gas sales volume declined 2.9% qoq to 465
mcm. FY2011 gas sales volumes decreased 2.9% yoy to 1.81 bcm.
DD&A expenses 51% higher qoq. DD&A expenses increased 50.9% qoq to `3.4 bn,
higher than our estimate of `3 bn. The company has written off `2.1 bn on account of
dry wells in 4QFY11 versus `813 mn in 3QFY11 and `158 Subsidy amount. We model subsidy amount for FY2012E, FY2013E and FY2014E at
`54.7 bn, `36.9 bn and `18.9 bn. We now assume diesel deregulation to be
implemented from FY2014E. We assume that upstream companies will bear 39% of the
overall under-recoveries and OIL will bear 10.8% of the share of upstream companies in
FY2012E. This is in line with the subsidy sharing for upstream companies in FY2011. We
assume that subsidy burden on upstream companies will reduce to one-third of gross
under-recoveries in FY2013E given our expected yoy decline in crude prices. The share of
OIL India was at 10.9% in FY2011 among the upstream companies.
We note that we do not model any increase in retail selling prices of diesel, kerosene and
LPG throughout our forecast period. Any increase in retail prices will result in lower gross
under-recoveries for the industry and lower subsidy burden for the upstream companies
concurrently. An empowered group of ministers (EGOM) is due to meet on June 9, 2011
to (1) consider raising retail prices of regulated products and (2) decide on the feasibility
of giving direct cash transfers on kerosene and LPG subsidies to poor families in order to
reduce overall under-recoveries.
Oil and gas volumes. We model crude oil sales volumes at 3.68 mn tons in FY2012E,
3.77 mn tons in FY2013E and 3.85 mn tons in FY2014E versus 3.59 mn tons in FY2011.
We model gas volumes at 5.5 mcm/d for FY2012E, 6.5 mcm/d in FY2013E and 7.5
mcm/d in FY2014E versus 5 mcm/d for FY2011. Implementation of EOR/IOR techniques in
OIL’s existing producing fields will likely contribute to higher volumes.
Crude oil price assumption. We model FY2012E, FY2013E and FY2014E crude oil
(Dated Brent) price at US$105/bbl, US$95/bbl and US$90/bbl. However, we would focus
more on OIL’s net realized crude price and our long-term crude price assumption. Exhibit
4 gives OIL’s historical net realized price and our expectations for FY2012E (US$64/bbl),
FY2013E (US$68/bbl) and FY2014E (US$78/bbl). FY2011 net realized crude oil price was
US$58.5/bbl. mn in 4QFY10.
Other expenditure 57% higher qoq. Other expenditure increased to `2.7 bn from `1.7
bn in 3QFY11.
Other income 9% lower qoq. Other income declined to `2.2 bn versus `2.8 bn in
3QFY11; our estimate was `2.4 bn.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Oil India (OINL)
Energy
Higher subsidy impacts 4QFY11 results. OIL reported weak 4QFY11 EBITDA at `9.4
bn (-29% qoq, +33% yoy), versus our `9.8 bn estimate led by government’s decision to
increase the share of gross under-recoveries for upstream companies to 38.7% for
FY2011. However, we maintain our ADD rating on the stock noting 19% potential
upside to our revised 12-month target price of `1,515 (`1,540 previously). We find
OIL’s current valuations attractive with the stock trading at 9X FY2012E EPS and 2.9X
FY2012E EV/EBITDA. Key downside risk stems from higher-than-expected subsidy loss.
4QFY11 net income at `5.6 bn (+31% yoy, -38% qoq); our estimate was `6.1 bn
OIL reported 4QFY11 weak net income at `5.6 bn (+31% yoy, -38% qoq), versus our estimate of
`6.1 bn. The variance versus our estimate reflects (1) lower gas sales at 465 mcm (-2.9% qoq and
+4.1% yoy) versus our expected 499 mcm, (2) modestly lower net realization at US$52.9/bbl
versus our expected US$53.3/bbl and (3) higher-than-expected DD&A cost at `3.4 bn. Reported
EBITDA was at `9.4 bn (-29% qoq, +33% yoy); lower qoq EBITDA reflects higher subsidy burden,
which resulted in lower net realized price at US$52.9/bbl (-US$0.4/bbl yoy, -US$14.2/bbl qoq).
A decent quarter operationally, but higher subsidy impacts bottom line
OIL had a decent 4QFY11 operationally with improvement in crude oil sales volumes to 0.95 mn
tons versus 0.91 mn tons in 3QFY11 and 0.85 mn tons in 4QFY10. However, gas sales were lower
at 465 mcm versus 479 mcm in 3QFY11 and 447 mcm in 4QFY10. However, earnings were
impacted by the high subsidy burden due to the government’s decision to increase the share of
upstream companies to 38.7% of the gross under-recoveries for FY2011. OIL’s 4QFY11 subsidy
burden was `16.1 bn versus `5.6 bn in 3QFY11 and `6.7 bn in 4QFY10.
Attractive valuations versus ad hoc subsidy-sharing mechanism
We maintain our ADD rating on OIL given (1) potential upside of 19% to our revised target price
of `1,515 based on 10X FY2013E adjusted EPS plus the value of investments and (2) compelling
valuation given the stock is trading at 9X FY2012E EPS and 2.9X FY2012E EV/EBITDA. We
highlight that the current valuations and earnings are depressed reflecting an ad hoc subsidysharing
mechanism. Even on current depressed earnings (FY2011E basis) the stock trades at 10X
EPS adjusted for the value of its equity investments. We note that the current stock price is
reflecting 43% sharing by upstream companies, which seems unlikely.
Fine-tuned FY2012-14E EPS estimates
We have revised our FY2012-14E EPS to `141 (+1.6%), `148 (-1.6%) and `180 (+0.5%) to reflect
(1) 4QFY11 results and (2) other minor changes.
Net realized price for crude oil. OIL’s 4QFY11 net realized crude price was US$52.9/bbl
versus US$67.1/bbl in 3QFY11 and US$53.3/bbl in 4QFY10. OIL’s subsidy burden in
4QFY11 was `16.1 bn or US$51.1/bbl in crude price oil equivalent terms versus crude
price equivalent of US$18.5/bbl in 3QFY11 and US$22.4/bbl in 4QFY10. Net realized
crude oil price was US$58.5/bbl in FY2011 versus US$56.2/bbl in FY2010.
Increase in crude sales volumes. 4QFY11 crude sales volume increased 12.2% yoy and
4.1% qoq to 0.95 mn tons. FY2011 crude sales volumes increased 0.8% yoy to 3.59 mn
tons.
Decline in gas sales volumes qoq. 4QFY11 gas sales volume declined 2.9% qoq to 465
mcm. FY2011 gas sales volumes decreased 2.9% yoy to 1.81 bcm.
DD&A expenses 51% higher qoq. DD&A expenses increased 50.9% qoq to `3.4 bn,
higher than our estimate of `3 bn. The company has written off `2.1 bn on account of
dry wells in 4QFY11 versus `813 mn in 3QFY11 and `158 Subsidy amount. We model subsidy amount for FY2012E, FY2013E and FY2014E at
`54.7 bn, `36.9 bn and `18.9 bn. We now assume diesel deregulation to be
implemented from FY2014E. We assume that upstream companies will bear 39% of the
overall under-recoveries and OIL will bear 10.8% of the share of upstream companies in
FY2012E. This is in line with the subsidy sharing for upstream companies in FY2011. We
assume that subsidy burden on upstream companies will reduce to one-third of gross
under-recoveries in FY2013E given our expected yoy decline in crude prices. The share of
OIL India was at 10.9% in FY2011 among the upstream companies.
We note that we do not model any increase in retail selling prices of diesel, kerosene and
LPG throughout our forecast period. Any increase in retail prices will result in lower gross
under-recoveries for the industry and lower subsidy burden for the upstream companies
concurrently. An empowered group of ministers (EGOM) is due to meet on June 9, 2011
to (1) consider raising retail prices of regulated products and (2) decide on the feasibility
of giving direct cash transfers on kerosene and LPG subsidies to poor families in order to
reduce overall under-recoveries.
Oil and gas volumes. We model crude oil sales volumes at 3.68 mn tons in FY2012E,
3.77 mn tons in FY2013E and 3.85 mn tons in FY2014E versus 3.59 mn tons in FY2011.
We model gas volumes at 5.5 mcm/d for FY2012E, 6.5 mcm/d in FY2013E and 7.5
mcm/d in FY2014E versus 5 mcm/d for FY2011. Implementation of EOR/IOR techniques in
OIL’s existing producing fields will likely contribute to higher volumes.
Crude oil price assumption. We model FY2012E, FY2013E and FY2014E crude oil
(Dated Brent) price at US$105/bbl, US$95/bbl and US$90/bbl. However, we would focus
more on OIL’s net realized crude price and our long-term crude price assumption. Exhibit
4 gives OIL’s historical net realized price and our expectations for FY2012E (US$64/bbl),
FY2013E (US$68/bbl) and FY2014E (US$78/bbl). FY2011 net realized crude oil price was
US$58.5/bbl. mn in 4QFY10.
Other expenditure 57% higher qoq. Other expenditure increased to `2.7 bn from `1.7
bn in 3QFY11.
Other income 9% lower qoq. Other income declined to `2.2 bn versus `2.8 bn in
3QFY11; our estimate was `2.4 bn.
No comments:
Post a Comment