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1Q PAT was broadly in line as higher other income offset the impact of higher than expected
subsidy burden and DD&A charge. While upstream shared one-third of gross under-recoveries in
1Q, it remains vulnerable to a higher share in the event of rising oil prices and higher underrecoveries,
as seen in FY11.
�� 1QFY12 PAT of Rs8.5bn (+69.5% yoy, +51% qoq) was 2.6% below our estimates. Other
income of Rs3.8bn (highest in last 12 quarters) was substantially ahead of us which offset the
impact of higher than estimated subsidy burden and DD&A charge. Other income was 30.3%
of PBT in 1QFY12.
�� During the quarter, Oil India (OIL) paid a subsidy of Rs17.8bn (+144% yoy, +11%qoq) which
was 14% higher than our forecasts. Consequently net realisation of US$59.6/bbl was 8%
below our estimates. Within upstream, OIL's share increased to 12.3% compared to the
average of 10-11% in the past.
�� A key highlight was the sharp rise in natural gas volumes. Production and sales were up 6.8%
and 9.2% qoq respectively mainly due to higher off take by Numaligarh refinery (NRL). The
company mentioned that gas off take by NRL through the Duliajan-Numaligarh gas pipeline
(DNPL) increased to 0.86mmscmd during the quarter since its commissioning in March 2011.
It is further expected to increase to 1mmscmd by September/October 2011. Crude production
and sales were up 1.9% and 1.4% qoq respectively.
�� DD&A charge of Rs2.8bn was substantially ahead of our estimates but down 18% qoq. Oil
India follows the successful efforts accounting method and writes off the cost of seismic
surveys and dry wells immediately, both of which can vary significantly from quarter to
quarter.
�� During the quarter, upstream companies (ONGC/OIL/GAIL) shared 1/3rd of industry under
recoveries down from 38.7% for FY11. However as seen in FY11, quarterly numbers are only
provisional and the final adjustment is done at the end of the year when GOI takes a call on
the actual sharing between upstream, downstream and itself. Consequently upstream
companies are vulnerable to bearing higher under recoveries in the event of higher oil
prices/higher under recoveries . Despite the recent price hikes and reduction in duties, GOI
estimates FY12 under recoveries of Rs1.2trn, up 54% yoy. To reflect the above risk , our
DCF-based valuation of Rs1,460 assumes oil realisation cap of US$60/bbl
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
1Q PAT was broadly in line as higher other income offset the impact of higher than expected
subsidy burden and DD&A charge. While upstream shared one-third of gross under-recoveries in
1Q, it remains vulnerable to a higher share in the event of rising oil prices and higher underrecoveries,
as seen in FY11.
�� 1QFY12 PAT of Rs8.5bn (+69.5% yoy, +51% qoq) was 2.6% below our estimates. Other
income of Rs3.8bn (highest in last 12 quarters) was substantially ahead of us which offset the
impact of higher than estimated subsidy burden and DD&A charge. Other income was 30.3%
of PBT in 1QFY12.
�� During the quarter, Oil India (OIL) paid a subsidy of Rs17.8bn (+144% yoy, +11%qoq) which
was 14% higher than our forecasts. Consequently net realisation of US$59.6/bbl was 8%
below our estimates. Within upstream, OIL's share increased to 12.3% compared to the
average of 10-11% in the past.
�� A key highlight was the sharp rise in natural gas volumes. Production and sales were up 6.8%
and 9.2% qoq respectively mainly due to higher off take by Numaligarh refinery (NRL). The
company mentioned that gas off take by NRL through the Duliajan-Numaligarh gas pipeline
(DNPL) increased to 0.86mmscmd during the quarter since its commissioning in March 2011.
It is further expected to increase to 1mmscmd by September/October 2011. Crude production
and sales were up 1.9% and 1.4% qoq respectively.
�� DD&A charge of Rs2.8bn was substantially ahead of our estimates but down 18% qoq. Oil
India follows the successful efforts accounting method and writes off the cost of seismic
surveys and dry wells immediately, both of which can vary significantly from quarter to
quarter.
�� During the quarter, upstream companies (ONGC/OIL/GAIL) shared 1/3rd of industry under
recoveries down from 38.7% for FY11. However as seen in FY11, quarterly numbers are only
provisional and the final adjustment is done at the end of the year when GOI takes a call on
the actual sharing between upstream, downstream and itself. Consequently upstream
companies are vulnerable to bearing higher under recoveries in the event of higher oil
prices/higher under recoveries . Despite the recent price hikes and reduction in duties, GOI
estimates FY12 under recoveries of Rs1.2trn, up 54% yoy. To reflect the above risk , our
DCF-based valuation of Rs1,460 assumes oil realisation cap of US$60/bbl
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