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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The govt, in its FY13 budget, has increased cess on domestic crude oil production from INR2500/MT (USD6.9/bbl) to INR4500/MT (USD12.4/bbl). We are negatively surprised by this and estimate FY13 EPS of Cairn to fall 11%. On the positive side, govt has budgeted INR430bn as oil subsidy for FY13. We expect this to include INR400bn of govt sharing for Q4FY12 which would be paid in Q1FY13. This implies only ~36-39% sharing by upstream companies for FY12, partly nullifying the impact of higher cess on ONGC. We estimate ONGC’s net realization in FY12 to be USD54/bbl at 39% upstream sharing. We cut our fair value of ONGC to INR362 (4.5%) and that of Cairn to INR 319 (6.7%). Maintain ‘BUY’ on ONGC, BPCL, and HPCL, and ‘HOLD’ on Cairn.
Increase in cess negative for upstream oil companies
Govt has increased cess on domestically produced crude oil from INR 2500/MT to INR 4500/MT. This will lead to a fall in crude realization by ~USD 5.5/bbl, and will have to be borne by upstream oil companies as the same cannot be passed on. We estimate Cairn’s FY13 EPS to fall by INR5.2 (11%) and SOTP to dip by INR23/share to INR319.
Govt budgets INR430bn for subsidy sharing in FY13
Govt has budgeted INR430bn as its share of under-recoveries for FY13. We note that in its budget for FY12, it had budgeted INR 230 bn, of which, INR200bn was a carry-forward of its share for Q4FY11. Similarly, of the INR430bn budgeted for FY13, we expect INR400bn to be compensation for govt subsidy sharing carried forward into FY13.
In effect, this means that govt would share INR850bn of under-recoveries for FY12 (60.7% of the INR1400bn total under-recovery), given that it has already compensated for INR450bn in 9mFY12. We expect oil marketing companies to share only INR0-5 bn, beyond which HPCL will not be able to breakeven (it reported a loss of INR37bn in 9mFY12). This implies that upstream companies will have to share only INR500-550bn (35.7-39.2% sharing).
We assume 39% upstream sharing in FY12 from 45% earlier, and 45% in FY13 from 50% earlier (increased revenues to govt from higher cess collection of INR 66bn), partially offsetting the impact of higher cess. Consequently, ONGC’s FY13 EPS will be lower by INR 0.9 (2.6%) and its SOTP will be lower by INR17/share to INR 362. We maintain ‘BUY’ on ONGC, BPCL, and HPCL and ‘HOLD’ on Cairn. We continue to like BPCL and ONGC as our top picks in the sector.
Regards,
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