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UBS Investment Research
Essar Oil
C ompany update
Event: Company update
Essar’s stock has fallen 26% over the past 1.5 months and is now trading at FY13
P/E of 7.1x. The under performance vs. the market is mainly on account of investor
concerns on refinery expansion and execution. The company though, has been
guiding for timely upgrade by Dec ‘12 and stabilisation of operations by Mar ‘12.
We update our estimates post the release of annual report & a company meeting.
Refinery upgrade on track
Based on our meeting we believe refinery expansion is on schedule – after the 35
day shutdown from mid Sept, the commissioning activities will begin. Essar
expects that the last piece of equipment to be commissioned will be the coker
drums that will be commissioned towards Dec’12. And we expect higher refinery
throughput and GRMs to be reflected by Mar’12. Further, the company believes
that the refinery will be debottlenecked to 20 MMTPA by Sept 2012 – though we
have conservatively incorporated debottlenecking in FY14.
Lowering our EPS estimate
We lower our FY 12/13/14 EPS expectation by 8%/4%/7% to price in the risks in
the current high interest rate environment and to incorporate the higher (than our
expectations) net debt of FY11. At this point, we do not factor in the Ratna fields
or its associated capex in our numbers.
Valuation: Maintain Buy; Lower price target to Rs160
We value the stock on a sum-of-the-parts basis: refinery, retail and upstream at
Rs123, Rs17/sh and Rs17 per share, resp.
Essar Oil
Essar Oil is a part of Essar Holdings Limited, a subsidiary of Essar Global
Limited. It operates a 14mtpa refinery on the west coast of India and plans to
increase refining capacity to 18mtpa by March 2011 and to 36mtpa by March
2013. The company's assets include developmental rights in proven exploration
blocks, and it has over 1,200 retail outlets across India with plans to expand to
3,000 outlets.
Statement of Risk
Refining margins and execution of the refinery upgrade are key business risks
for Essar at this stage. Progress on E&P can provide upside.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Essar Oil
C ompany update
Event: Company update
Essar’s stock has fallen 26% over the past 1.5 months and is now trading at FY13
P/E of 7.1x. The under performance vs. the market is mainly on account of investor
concerns on refinery expansion and execution. The company though, has been
guiding for timely upgrade by Dec ‘12 and stabilisation of operations by Mar ‘12.
We update our estimates post the release of annual report & a company meeting.
Refinery upgrade on track
Based on our meeting we believe refinery expansion is on schedule – after the 35
day shutdown from mid Sept, the commissioning activities will begin. Essar
expects that the last piece of equipment to be commissioned will be the coker
drums that will be commissioned towards Dec’12. And we expect higher refinery
throughput and GRMs to be reflected by Mar’12. Further, the company believes
that the refinery will be debottlenecked to 20 MMTPA by Sept 2012 – though we
have conservatively incorporated debottlenecking in FY14.
Lowering our EPS estimate
We lower our FY 12/13/14 EPS expectation by 8%/4%/7% to price in the risks in
the current high interest rate environment and to incorporate the higher (than our
expectations) net debt of FY11. At this point, we do not factor in the Ratna fields
or its associated capex in our numbers.
Valuation: Maintain Buy; Lower price target to Rs160
We value the stock on a sum-of-the-parts basis: refinery, retail and upstream at
Rs123, Rs17/sh and Rs17 per share, resp.
Essar Oil
Essar Oil is a part of Essar Holdings Limited, a subsidiary of Essar Global
Limited. It operates a 14mtpa refinery on the west coast of India and plans to
increase refining capacity to 18mtpa by March 2011 and to 36mtpa by March
2013. The company's assets include developmental rights in proven exploration
blocks, and it has over 1,200 retail outlets across India with plans to expand to
3,000 outlets.
Statement of Risk
Refining margins and execution of the refinery upgrade are key business risks
for Essar at this stage. Progress on E&P can provide upside.
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