Oil India - “Grows y-o-y in spite of subsidy woes” :LKP

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

In spite of a steep hike in subsidy sharing to 47% for Q3 FY12, OIL India posted positive topline & bottomline growth y-o-y and also beat our estimates due to lower than expected other expenses.

Q3 FY12 crude/gas production 0%/2.7% ahead of estimates

Q3FY12 crude production of 0.962 MMT was down 0.029 MMT q-o-q but up by 0.026 MMT y-o-y. Thus, crude sales of 0.95 MMT was down 0.016 MMT q-o-q but up by 0.034 MMT y-o-y. Gas production of 0.676 bcm was flat q-o-q & up 0.06 bcm y-o-y; similarly, gas sales of 0.544 bcm was flat q-o-q but up 0.066 bcm y-o-y. LPG sales at 13,434 KT were down 240 KT q-o-q but up by 1,060 KT y-o-y.

Q3 FY12 subsidy doubles q-o-q to $53.1/bbl ($53.6/bbl expected)

Q3 FY12 subsidy burden of Rs 18.5 bn ($53.1/bbl) translated into 12.1% of Q3 FY12 upstream sector subsidy burden of Rs 152.6 bn. While it was double the subsidy burden of $26.2/bbl in Q2 FY12, it was almost triple the Q3 FY11 figure of $18.5/bbl. Thus, net realization plunged from $86.3/bbl in Q2 FY12 to $57/bbl in Q3 FY12 ($56.5/bbl expected).

Q3 FY12 net sales at Rs 25.9 bn, 3% ahead of estimates

Revenue of Rs 25.9 bn in Q3 FY12 translated into growth of 4.7% y-o-y, but was lower by 22.9% q-o-q. Crude & gas sales for Q3 FY12 stood at Rs 20.8 bn & Rs 3 bn respectively, due to consistent production figures in the face of a steep subsidy burden. LPG sales for the quarter dropped to Rs 0.13 bn due to increase in the subsidy on LPG. Transportation sales of Rs 0.8 bn was down 8% q-o-q, but up 18% y-o-y owing to upward revision in the transportation tariff for the crude oil trunk line.

Upstream subsidy sharing for Q4 FY12 expected to be same as Q3 FY12

The upstream sector’s share of the gross under recoveries, which was fixed at ~33% during FY08-10, had been increased suddenly to ~39% in FY11. Since our FY12 & FY13 estimates of gross under-recovery at Rs 1,297 bn & Rs 1,138 bn are significantly higher than the gross under recovery of Rs 782 bn in FY11, we assume 39% of the gross subsidy burden to be borne by the upstream sector going forward. We expect the upstream sector to again bear 47% of Q4 FY12 under recoveries, thus, taking the FY12 upstream subsidy share to 39% of total under recoveries.

Outlook and Valuation

We believe the stock would react to news flow regarding the subsidy sharing pattern that would emerge over the course of this year. We expect revenue & PAT to post FY11-14 CAGR of 10.7% & 12.5% respectively. We raise our FY12 & FY13 EPS estimates to Rs 151.8 and Rs 157.5 in FY12 & FY13 respectively.

We maintain our BUY rating with a target price of Rs 1,529. Our price target translates into EV/boe of $ 6.1/boe and FY12E & FY13E P/E of 10.1x and 9.7x respectively.