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India Equity Research Reports, IPO and Stock News
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Fuel pricing, asset incumbency, and better risk-reward for cyclicals
Continue to like domestic themes, but global cyclicals see improved
risk-reward post recent correction
We still prefer domestic themes such as fuel pricing changes, asset incumbency,
and higher LNG imports. However, risk-reward has improved for some global
cyclical stocks post the recent correction. We reiterate our Buy (CL) on ONGC.
We believe an overhang on the stock should be removed shortly with the final
decision on the government’s share sale. We also retain Buy ratings on HPCL
(CL) and GAIL. We downgrade GSPL and IOC to Neutral from Buy, and Oil India
to Sell from Neutral on valuation. We revise our target prices by -11% to +67%
and 2012E-2014E earnings for the sector to reflect lower refining margins, lower
domestic gas volumes, and lower under-recoveries from fuel price hikes.
Regulatory action in fuel prices to help state-owned companies
Despite firm oil prices over the mid term, we think cash flows of oil marketing
companies could benefit from any fuel price change and correction in distillate
cracks. We prefer HPCL as it could be a key beneficiary from lower marketing
losses, and Bhatinda refinery earnings should start showing in 4QFY12E.
Asset incumbency to command a premium; PLNG to Buy
With new projects facing higher regulatory hurdles and cost escalation, we
believe companies with large incumbent assets will command a premium. In our
view, PLNG has a competitive advantage with its extant terminal. Also, a
stagnant domestic gas supply until end-FY14E, which we expect, should allow
higher margins to be sustained over the medium term. We look for GAIL’s (Buy)
incumbent assets to benefit from any possible increase in difficulty for obtaining
Right of Use of land for new pipelines.
Raise Cairn India to Buy; strong cash flows, volume ramp-up soon
We expect a series of positive operating updates from Cairn after the
Vedanta deal concludes this month. With the next level of volume ramp-up
in sight and annual free cash flow of US$2.0+bn from FY13E, the stock
potentially implies US$72/bbl LT oil price from FY13E onwards.
CY12E refining margins likely lower than CY11E; Neutral on RIL
We expect the refining cycle to be sustained until CY13E, but forecast CY12E’s
margin down vs. CY11E, impacting RIL’s FY13E EPS. We also do not expect D-6
volumes to grow until FY15E. We are 1%-11% below consensus for FY12-14E EPS.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Fuel pricing, asset incumbency, and better risk-reward for cyclicals
Continue to like domestic themes, but global cyclicals see improved
risk-reward post recent correction
We still prefer domestic themes such as fuel pricing changes, asset incumbency,
and higher LNG imports. However, risk-reward has improved for some global
cyclical stocks post the recent correction. We reiterate our Buy (CL) on ONGC.
We believe an overhang on the stock should be removed shortly with the final
decision on the government’s share sale. We also retain Buy ratings on HPCL
(CL) and GAIL. We downgrade GSPL and IOC to Neutral from Buy, and Oil India
to Sell from Neutral on valuation. We revise our target prices by -11% to +67%
and 2012E-2014E earnings for the sector to reflect lower refining margins, lower
domestic gas volumes, and lower under-recoveries from fuel price hikes.
Regulatory action in fuel prices to help state-owned companies
Despite firm oil prices over the mid term, we think cash flows of oil marketing
companies could benefit from any fuel price change and correction in distillate
cracks. We prefer HPCL as it could be a key beneficiary from lower marketing
losses, and Bhatinda refinery earnings should start showing in 4QFY12E.
Asset incumbency to command a premium; PLNG to Buy
With new projects facing higher regulatory hurdles and cost escalation, we
believe companies with large incumbent assets will command a premium. In our
view, PLNG has a competitive advantage with its extant terminal. Also, a
stagnant domestic gas supply until end-FY14E, which we expect, should allow
higher margins to be sustained over the medium term. We look for GAIL’s (Buy)
incumbent assets to benefit from any possible increase in difficulty for obtaining
Right of Use of land for new pipelines.
Raise Cairn India to Buy; strong cash flows, volume ramp-up soon
We expect a series of positive operating updates from Cairn after the
Vedanta deal concludes this month. With the next level of volume ramp-up
in sight and annual free cash flow of US$2.0+bn from FY13E, the stock
potentially implies US$72/bbl LT oil price from FY13E onwards.
CY12E refining margins likely lower than CY11E; Neutral on RIL
We expect the refining cycle to be sustained until CY13E, but forecast CY12E’s
margin down vs. CY11E, impacting RIL’s FY13E EPS. We also do not expect D-6
volumes to grow until FY15E. We are 1%-11% below consensus for FY12-14E EPS.
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