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Essar Oil (ESOIL) reported Q3FY12 EBITDA of INR4.8bn and loss of
INR39.8bn versus estimates of INR(231)mn and INR(3.2)bn, respectively.
Operating GRM at USD2.8/bbl was down USD2.3/bbl QoQ on weak
gasoline margins and fall in light-heavy spreads. Adjusting for INR2.5bn
forex loss, EBITDA is much higher due to inventory gains booked in gross
margins. It reversed INR40bn of sales tax benefit booked so far. ESOIL
expects to commission the entire 18 mmtpa refinery by March 2012, post
which complexity will rise to 11.8, close to that of RIL. Maintain ‘BUY’.
Lower operational GRMs at USD2.8/bbl; throughput at 2.81 mmt
ESOIL’s operational GRMs (excl. sales tax benefits) of USD2.8/bbl (down USD2.3/bbl
QoQ) was lower than USD4.2/bbl estimate due to weak gasoline margins and fall in
light-heavy spreads. Including sales tax deferral benefit, GRMs were USD6.1/bbl
(USD7.2/bbl QoQ). Refining throughput at 2.81 mmt was down 7.3% QoQ and 24.7%
YoY due to the shutdown in refinery for 22 days.
Reversal of sales tax benefit hurts, but refinery expansion on track
Post the Supreme Court ruling against sales tax deferral, ESOIL reversed INR40.15bn of
sales tax benefit it had accounted for over the past three years. The company has filed
a review petition with SC for the same, and is in discussion with Gujarat govt. to finalize
the repayment schedule. To boost its net worth, ESOIL is proposing to its parent Essar
Energy conversion of INR14bn of FCCBs due in 2028 into equity (conversion price at
INR138 and INR153 for two tranches). It also plans to raise further equity and reduce
promoter holding in the process to the SEBI mandated 75% by June 2013.
The refinery expansion from 14 mmtpa to 18 mmtpa with Nelson Complexity of 11.8
will be operational by March 2012. Post this, share of ultra-heavy and heavy crude will
rise from 75% to 81% while share of heavy distillates will fall from 25% to 16%.
Outlook and valuations: GRMs to improve in FY13; maintain ‘BUY’
We value ESOIL using 5.5x EV/EBIDTA for its refining business and INR44/share for its
CBM business. Key triggers are the refinery ramp up, scale up of CBM production and
gas pricing, and exiting from CDR, post which the company can raise foreign debt and
cut cost of debt from 11% currently. Maintain ‘BUY’ with a SOTP of INR101/share
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Essar Oil (ESOIL) reported Q3FY12 EBITDA of INR4.8bn and loss of
INR39.8bn versus estimates of INR(231)mn and INR(3.2)bn, respectively.
Operating GRM at USD2.8/bbl was down USD2.3/bbl QoQ on weak
gasoline margins and fall in light-heavy spreads. Adjusting for INR2.5bn
forex loss, EBITDA is much higher due to inventory gains booked in gross
margins. It reversed INR40bn of sales tax benefit booked so far. ESOIL
expects to commission the entire 18 mmtpa refinery by March 2012, post
which complexity will rise to 11.8, close to that of RIL. Maintain ‘BUY’.
Lower operational GRMs at USD2.8/bbl; throughput at 2.81 mmt
ESOIL’s operational GRMs (excl. sales tax benefits) of USD2.8/bbl (down USD2.3/bbl
QoQ) was lower than USD4.2/bbl estimate due to weak gasoline margins and fall in
light-heavy spreads. Including sales tax deferral benefit, GRMs were USD6.1/bbl
(USD7.2/bbl QoQ). Refining throughput at 2.81 mmt was down 7.3% QoQ and 24.7%
YoY due to the shutdown in refinery for 22 days.
Reversal of sales tax benefit hurts, but refinery expansion on track
Post the Supreme Court ruling against sales tax deferral, ESOIL reversed INR40.15bn of
sales tax benefit it had accounted for over the past three years. The company has filed
a review petition with SC for the same, and is in discussion with Gujarat govt. to finalize
the repayment schedule. To boost its net worth, ESOIL is proposing to its parent Essar
Energy conversion of INR14bn of FCCBs due in 2028 into equity (conversion price at
INR138 and INR153 for two tranches). It also plans to raise further equity and reduce
promoter holding in the process to the SEBI mandated 75% by June 2013.
The refinery expansion from 14 mmtpa to 18 mmtpa with Nelson Complexity of 11.8
will be operational by March 2012. Post this, share of ultra-heavy and heavy crude will
rise from 75% to 81% while share of heavy distillates will fall from 25% to 16%.
Outlook and valuations: GRMs to improve in FY13; maintain ‘BUY’
We value ESOIL using 5.5x EV/EBIDTA for its refining business and INR44/share for its
CBM business. Key triggers are the refinery ramp up, scale up of CBM production and
gas pricing, and exiting from CDR, post which the company can raise foreign debt and
cut cost of debt from 11% currently. Maintain ‘BUY’ with a SOTP of INR101/share
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