Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
India Oil and Gas
Price hike in line with expectations
„ Event: Price hike: little late but in line with expectations
After various delays of the EGoM meeting for the purpose, the government finally
raised diesel, LPG and kerosene prices by 9%, 14.5% and 20%, respectively. This
was modestly ahead of estimates. In addition, reduction in under recoveries will be
sharper as govt has also lowered applicable duties.
„ Impact: positive move, but further price increases needed
We estimate that the overall FY12 under recoveries of the OMCs at current Brent
price of US$110/bbl will decrease from Rs 1.7tn to Rs 1tn. FY11 under recovery
was Rs0.78tn. The OMCs will still incur under recoveries, and diesel prices need to
be increased by another 15%(Rs 6/ltr) to breakeven on the fuel. We earlier
expected two rounds of price hikes, but we believe the likelihood of a second price
hike this year is low given the political pushback. The govt will also incur some
loss of revenue due to the duty cuts.
„ Action: Higher realisation for upstream companies
We continue to be buyers of GAIL and of ONGC and OIL as their net realisation
improves on lower subsidy burden. ONGC’s net realisation would be ~US$ 68/bbl
vs US$ 40/bbl under earlier price and duty structure. We incorporate an average of
US$66/bbl in our FY12 estimates. But the OMC’s will continue to depend on govt
subsidy as they still incur under recoveries and hence we do not expect significant
improvement in their financial position except for lower short term debt.
„ Top picks: Continue to like ONGC, OIL, and GAIL
ONGC, OIL, and GAIL directly benefit from the lower subsidy burden
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
India Oil and Gas
Price hike in line with expectations
„ Event: Price hike: little late but in line with expectations
After various delays of the EGoM meeting for the purpose, the government finally
raised diesel, LPG and kerosene prices by 9%, 14.5% and 20%, respectively. This
was modestly ahead of estimates. In addition, reduction in under recoveries will be
sharper as govt has also lowered applicable duties.
„ Impact: positive move, but further price increases needed
We estimate that the overall FY12 under recoveries of the OMCs at current Brent
price of US$110/bbl will decrease from Rs 1.7tn to Rs 1tn. FY11 under recovery
was Rs0.78tn. The OMCs will still incur under recoveries, and diesel prices need to
be increased by another 15%(Rs 6/ltr) to breakeven on the fuel. We earlier
expected two rounds of price hikes, but we believe the likelihood of a second price
hike this year is low given the political pushback. The govt will also incur some
loss of revenue due to the duty cuts.
„ Action: Higher realisation for upstream companies
We continue to be buyers of GAIL and of ONGC and OIL as their net realisation
improves on lower subsidy burden. ONGC’s net realisation would be ~US$ 68/bbl
vs US$ 40/bbl under earlier price and duty structure. We incorporate an average of
US$66/bbl in our FY12 estimates. But the OMC’s will continue to depend on govt
subsidy as they still incur under recoveries and hence we do not expect significant
improvement in their financial position except for lower short term debt.
„ Top picks: Continue to like ONGC, OIL, and GAIL
ONGC, OIL, and GAIL directly benefit from the lower subsidy burden
No comments:
Post a Comment