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Oil & Gas, Petrochemicals
Sector Highlights
Brent at US$112/bbl and Indian market crude Bonny light at US$115/bbl:
Brent price at US$112.4/bbl is up 47% YoY but down 4% QoQ in 2Q FY12.
In 2Q FY12 Bonny Light, which is marker crude for several Indian oil
producers, at US$115.3/bbl is up 48% YoY (US$78.1/bbl in 2Q FY11) but
down 4% QoQ (US$119.7/bbl in 1Q FY12).
Singapore complex GRM at US$9.2bbl highest in 17 quarters: 2Q FY12
Reuters’ Singapore complex GRM is up 116% YoY and 7% QoQ at
US$9.2/bbl. Singapore GRM was US$8.5/bbl in 1Q FY12 and US$4.2/bbl in
2Q FY11. Singapore GRM in 2Q FY12 is at the highest level in 17 quarters.
Rupee stronger 2%YoY but 2% weaker QoQ: The rupee at Rs45.8 in 2Q
FY12 has appreciated by 2% YoY from Rs46.5 in 2Q FY11 but is 2% QoQ
weaker from Rs44.7 in 1Q FY12. A stronger rupee means lower refining and
petrochemical margin in rupee terms, and vice versa. Also, weaker rupee
means higher subsidy and a strong rupee implies lower subsidy.
2Q subsidy estimated at Rs236bn (up 109% YoY but down 46% QoQ):
We estimate 2Q FY12 subsidy on diesel, LPG and kerosene, which is shared
by the government, upstream and R&M companies at Rs236bn. 2Q subsidy
is up 109% YoY. 2Q subsidy is down 46% QoQ despite oil price being just
2% QoQ down in rupee terms (Brent down 4% QoQ but rupee up 2% QoQ).
The QoQ decline is mainly due to price hikes and duty cuts made in June
2011, which cut subsidy. We estimate 2Q diesel subsidy at Rs106bn and
LPG and kerosene subsidy at Rs131bn.
Sharing assumed at government 42%, upstream 44% & R&M 14%:
Upstream companies had to bear 38.7% of FY11 subsidy. We have assumed
that upstream companies would bear 33% not just of 2Q subsidy but also
33% of subsidy cut due to excise and import duty cut on diesel. This would
mean upstream bears Rs104bn, which is 44% of 2Q subsidy. We have
assumed that the government would contribute Rs100bn to R&M companies
as compensation, implying 42% share in 2Q subsidy. Thus R&M companies
are assumed to bear 14% of diesel, LPG and kerosene subsidy (Rs32bn) in
2Q FY12. They will also bear the entire petrol subsidy, estimated at Rs3bn.
Company-wise expectations for the quarter
Reliance Industries (RIL)
17% YoY rise in net profit driven mainly by higher refining EBIT and other
income: We estimate RIL’s 2Q FY12E net profit to be 17% YoY higher at
Rs57.7bn. We expect RIL’s EBITDA to rise by just 4% YoY to Rs97.4bn. The
modest rise is due to 21% YoY decline in E&P EBITDA. E&P EBITDA decline is
due to 24% YoY decline in gross KG D6 oil & gas volumes and a steeper 27%
YoY decline in RIL’s volumes. RIL’s volume fall is steeper as its share in KG D6
output will drop to 60% from 90% post the completion of deal with BP in end-
August (lower volumes for 1 month). We expect RIL’s EBIT to rise by 13% YoY
driven by 49% YoY rise in refining EBIT. We expect RIL’s GRM to jump by 33%
YoY (up 2% QoQ) to US$10.2/bbl vis-à-vis US$7.9/bbl in 2Q FY11. We expect
petrochemical EBIT to be up just 2% YoY and 1% QoQ. We expect E&P EBIT to
be 19% YoY lower at Rs13.8bn hit by 27% YoY lower oil & gas volumes. The fall
in E&P EBIT is less steep than the fall in E&P EBITDA as we also expect E&P
DD&A to fall by 23% YoY as the consideration from BP is reduced from the gross
block.
Oil India (OIL)
Higher net oil price to drive 25% YoY rise in 2Q profit despite 44% share in
subsidy assumed: We expect OIL’s 2Q profit to be 25% YoY higher at Rs11.5bn
driven by 13% YoY higher oil price, 15% YoY higher gas volumes and 51% YoY
higher other income (down 17% QoQ). Despite assuming upstream share in
subsidy of 44% in 2Q we expect OIL’s 2Q oil price net of subsidy to be 15% YoY
and 22% QoQ higher at US$72.8/bbl. Its net oil price was US$59.6/bbl in 1Q
FY12 and US$63.2/bbl in 2Q FY11. OIL’s net oil price would be US$83.0/bbl (up
31% YoY and 39% QoQ) if upstream has to bear 33% of 2Q subsidy.
R&M companies (BPCL and HPCL)
Loss in 2Q FY11: As discussed we have assumed R&M companies will bear
Rs32bn (14%) of the diesel and LPG-kerosene subsidy in 2Q. They will also bear
the Rs3bn of petrol subsidy. We have assumed refining margins at US$5.0/bbl
for BPCL and HPCL (up 78%-88% YoY). However, given the subsidy burden,
BPCL and HPCL are expected to post losses of Rs2.6-5.4bn (Rs7.2-15.9/share).
Gas utilities
GAIL
Gas transmission and petrochemical EBITDA rise to drive 21% YoY rise in
profit: We expect GAIL’s 2Q FY12 net profit to be 21% YoY higher at Rs11.1bn.
The rise would be driven by 13% YoY rise in gas transmission EBITDA and 27%
YoY jump in petrochemicals EBITDA. LPG production EBITDA is expected to be
55% YoY higher before adjusting for subsidy and 22% YoY higher net of subsidy.
GAIL bears only LPG and kerosene subsidy (does not bear diesel subsidy). We
are assuming upstream bears just 33% of 2Q LPG and kerosene subsidy. On that
basis GAIL’s 2Q subsidy is assumed at Rs6.0bn. Upstream being required to
bear higher proportion of LPG-kerosene subsidy than 33% cannot be ruled out. In
that case GAIL’s 2Q profit would be lower than our estimate
GSPL
34% YoY higher profit driven by 39% YoY lower depreciation: We expect
GSPL’s 2Q FY12 net profit to be 34% YoY higher at Rs1.2bn. 2Q EBITDA is
expected to be up 6% YoY but profit is expected to rise 34% YoY due to lower
depreciation. Depreciation will be 39% YoY lower due to cut in depreciation rate
on pipelines from 8.33% to 3.17%, which was implemented only in 4Q FY11 but
was effective from April 2010. We are assuming 3% YoY higher transmission
tariff in 2Q while gas volumes are assumed flat YoY.
Petronet LNG
Earnings up 88% YoY driven by 33% YoY higher regas volumes and 19%
YoY higher regas charge: We expect Petronet LNG’s 2Q net profit to be 88%
YoY higher at Rs2.5bn vs. 2Q FY11 profit of Rs1.3bn. The YoY jump in 2Q profit
is mainly driven by 33% YoY higher regas volumes at 133TBTU (2.7mmt) and
19% YoY higher regas charge. We expect PLNG’s 2Q profit to be 4% QoQ lower.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Oil & Gas, Petrochemicals
Sector Highlights
Brent at US$112/bbl and Indian market crude Bonny light at US$115/bbl:
Brent price at US$112.4/bbl is up 47% YoY but down 4% QoQ in 2Q FY12.
In 2Q FY12 Bonny Light, which is marker crude for several Indian oil
producers, at US$115.3/bbl is up 48% YoY (US$78.1/bbl in 2Q FY11) but
down 4% QoQ (US$119.7/bbl in 1Q FY12).
Singapore complex GRM at US$9.2bbl highest in 17 quarters: 2Q FY12
Reuters’ Singapore complex GRM is up 116% YoY and 7% QoQ at
US$9.2/bbl. Singapore GRM was US$8.5/bbl in 1Q FY12 and US$4.2/bbl in
2Q FY11. Singapore GRM in 2Q FY12 is at the highest level in 17 quarters.
Rupee stronger 2%YoY but 2% weaker QoQ: The rupee at Rs45.8 in 2Q
FY12 has appreciated by 2% YoY from Rs46.5 in 2Q FY11 but is 2% QoQ
weaker from Rs44.7 in 1Q FY12. A stronger rupee means lower refining and
petrochemical margin in rupee terms, and vice versa. Also, weaker rupee
means higher subsidy and a strong rupee implies lower subsidy.
2Q subsidy estimated at Rs236bn (up 109% YoY but down 46% QoQ):
We estimate 2Q FY12 subsidy on diesel, LPG and kerosene, which is shared
by the government, upstream and R&M companies at Rs236bn. 2Q subsidy
is up 109% YoY. 2Q subsidy is down 46% QoQ despite oil price being just
2% QoQ down in rupee terms (Brent down 4% QoQ but rupee up 2% QoQ).
The QoQ decline is mainly due to price hikes and duty cuts made in June
2011, which cut subsidy. We estimate 2Q diesel subsidy at Rs106bn and
LPG and kerosene subsidy at Rs131bn.
Sharing assumed at government 42%, upstream 44% & R&M 14%:
Upstream companies had to bear 38.7% of FY11 subsidy. We have assumed
that upstream companies would bear 33% not just of 2Q subsidy but also
33% of subsidy cut due to excise and import duty cut on diesel. This would
mean upstream bears Rs104bn, which is 44% of 2Q subsidy. We have
assumed that the government would contribute Rs100bn to R&M companies
as compensation, implying 42% share in 2Q subsidy. Thus R&M companies
are assumed to bear 14% of diesel, LPG and kerosene subsidy (Rs32bn) in
2Q FY12. They will also bear the entire petrol subsidy, estimated at Rs3bn.
Company-wise expectations for the quarter
Reliance Industries (RIL)
17% YoY rise in net profit driven mainly by higher refining EBIT and other
income: We estimate RIL’s 2Q FY12E net profit to be 17% YoY higher at
Rs57.7bn. We expect RIL’s EBITDA to rise by just 4% YoY to Rs97.4bn. The
modest rise is due to 21% YoY decline in E&P EBITDA. E&P EBITDA decline is
due to 24% YoY decline in gross KG D6 oil & gas volumes and a steeper 27%
YoY decline in RIL’s volumes. RIL’s volume fall is steeper as its share in KG D6
output will drop to 60% from 90% post the completion of deal with BP in end-
August (lower volumes for 1 month). We expect RIL’s EBIT to rise by 13% YoY
driven by 49% YoY rise in refining EBIT. We expect RIL’s GRM to jump by 33%
YoY (up 2% QoQ) to US$10.2/bbl vis-à-vis US$7.9/bbl in 2Q FY11. We expect
petrochemical EBIT to be up just 2% YoY and 1% QoQ. We expect E&P EBIT to
be 19% YoY lower at Rs13.8bn hit by 27% YoY lower oil & gas volumes. The fall
in E&P EBIT is less steep than the fall in E&P EBITDA as we also expect E&P
DD&A to fall by 23% YoY as the consideration from BP is reduced from the gross
block.
Oil India (OIL)
Higher net oil price to drive 25% YoY rise in 2Q profit despite 44% share in
subsidy assumed: We expect OIL’s 2Q profit to be 25% YoY higher at Rs11.5bn
driven by 13% YoY higher oil price, 15% YoY higher gas volumes and 51% YoY
higher other income (down 17% QoQ). Despite assuming upstream share in
subsidy of 44% in 2Q we expect OIL’s 2Q oil price net of subsidy to be 15% YoY
and 22% QoQ higher at US$72.8/bbl. Its net oil price was US$59.6/bbl in 1Q
FY12 and US$63.2/bbl in 2Q FY11. OIL’s net oil price would be US$83.0/bbl (up
31% YoY and 39% QoQ) if upstream has to bear 33% of 2Q subsidy.
R&M companies (BPCL and HPCL)
Loss in 2Q FY11: As discussed we have assumed R&M companies will bear
Rs32bn (14%) of the diesel and LPG-kerosene subsidy in 2Q. They will also bear
the Rs3bn of petrol subsidy. We have assumed refining margins at US$5.0/bbl
for BPCL and HPCL (up 78%-88% YoY). However, given the subsidy burden,
BPCL and HPCL are expected to post losses of Rs2.6-5.4bn (Rs7.2-15.9/share).
Gas utilities
GAIL
Gas transmission and petrochemical EBITDA rise to drive 21% YoY rise in
profit: We expect GAIL’s 2Q FY12 net profit to be 21% YoY higher at Rs11.1bn.
The rise would be driven by 13% YoY rise in gas transmission EBITDA and 27%
YoY jump in petrochemicals EBITDA. LPG production EBITDA is expected to be
55% YoY higher before adjusting for subsidy and 22% YoY higher net of subsidy.
GAIL bears only LPG and kerosene subsidy (does not bear diesel subsidy). We
are assuming upstream bears just 33% of 2Q LPG and kerosene subsidy. On that
basis GAIL’s 2Q subsidy is assumed at Rs6.0bn. Upstream being required to
bear higher proportion of LPG-kerosene subsidy than 33% cannot be ruled out. In
that case GAIL’s 2Q profit would be lower than our estimate
GSPL
34% YoY higher profit driven by 39% YoY lower depreciation: We expect
GSPL’s 2Q FY12 net profit to be 34% YoY higher at Rs1.2bn. 2Q EBITDA is
expected to be up 6% YoY but profit is expected to rise 34% YoY due to lower
depreciation. Depreciation will be 39% YoY lower due to cut in depreciation rate
on pipelines from 8.33% to 3.17%, which was implemented only in 4Q FY11 but
was effective from April 2010. We are assuming 3% YoY higher transmission
tariff in 2Q while gas volumes are assumed flat YoY.
Petronet LNG
Earnings up 88% YoY driven by 33% YoY higher regas volumes and 19%
YoY higher regas charge: We expect Petronet LNG’s 2Q net profit to be 88%
YoY higher at Rs2.5bn vs. 2Q FY11 profit of Rs1.3bn. The YoY jump in 2Q profit
is mainly driven by 33% YoY higher regas volumes at 133TBTU (2.7mmt) and
19% YoY higher regas charge. We expect PLNG’s 2Q profit to be 4% QoQ lower.
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