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Oil India Ltd
Cut to Neutral as cess raised
while reforms appear unlikely
FY13E EPS cut by 5% and PO by 18% to Rs1,331/share
The cess on crude oil has been raised from Rs2,575/ton (US$7.0/bbl) to
Rs4,635/ton (US$12.5/bbl) in the FY13 budget. This would mean a cut in OIL’s
FY13-14E EPS by 14%, but the cut is just 4-5% as we had under-estimated other
income, which we have raised. We have cut OIL’s PO by 18% to Rs1,331/share
from Rs1,618/share earlier. OIL’s revised PO implies 10% potential upside. We
downgrade OIL to Neutral given the hit from rise in cess and also as hope of
reforms is fading after the recent state election results.
EPS cut due to rise in cess by 80% (US$5.6/bbl)
The increase in cess on crude oil by 80% (US$5.6/bbl) to Rs4,635/ton
(US$12.5/bbl) has meant a cut in OIL’s FY13E EPS by 5%. If there is no diesel
price hike, or only a modest hike, OIL’s FY13 EPS is likely to be YoY lower. Share
in subsidy of OIL and its upstream peers is another crucial factor, which will
influence its earnings outlook.
Cut PO on rise in cess; PO at 10% discount to fair value
OIL’s theoretical fair value is down by 9% to Rs1,479/share due to the rise in cess
on crude. OIL trades at discount to its fair value when there is no progress on
reforms, there is uncertainty on subsidy sharing and earnings outlook is poor. We
are skeptical on reforms in the remaining two-year term of this government. When
there is no progress on reforms risk of adverse subsidy sharing also rises. We
have therefore fixed OIL’s PO at 10% discount to its fair value at Rs1,331/share.
What would make us bullish or bearish on OIL?
Hefty hike in subsidized products or steep fall in oil price and favorable subsidy
sharing, which improves earnings outlook, would make us more bullish. Sharply
higher oil price and adverse subsidy sharing would make us more bearish on OIL
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Oil India Ltd
Cut to Neutral as cess raised
while reforms appear unlikely
FY13E EPS cut by 5% and PO by 18% to Rs1,331/share
The cess on crude oil has been raised from Rs2,575/ton (US$7.0/bbl) to
Rs4,635/ton (US$12.5/bbl) in the FY13 budget. This would mean a cut in OIL’s
FY13-14E EPS by 14%, but the cut is just 4-5% as we had under-estimated other
income, which we have raised. We have cut OIL’s PO by 18% to Rs1,331/share
from Rs1,618/share earlier. OIL’s revised PO implies 10% potential upside. We
downgrade OIL to Neutral given the hit from rise in cess and also as hope of
reforms is fading after the recent state election results.
EPS cut due to rise in cess by 80% (US$5.6/bbl)
The increase in cess on crude oil by 80% (US$5.6/bbl) to Rs4,635/ton
(US$12.5/bbl) has meant a cut in OIL’s FY13E EPS by 5%. If there is no diesel
price hike, or only a modest hike, OIL’s FY13 EPS is likely to be YoY lower. Share
in subsidy of OIL and its upstream peers is another crucial factor, which will
influence its earnings outlook.
Cut PO on rise in cess; PO at 10% discount to fair value
OIL’s theoretical fair value is down by 9% to Rs1,479/share due to the rise in cess
on crude. OIL trades at discount to its fair value when there is no progress on
reforms, there is uncertainty on subsidy sharing and earnings outlook is poor. We
are skeptical on reforms in the remaining two-year term of this government. When
there is no progress on reforms risk of adverse subsidy sharing also rises. We
have therefore fixed OIL’s PO at 10% discount to its fair value at Rs1,331/share.
What would make us bullish or bearish on OIL?
Hefty hike in subsidized products or steep fall in oil price and favorable subsidy
sharing, which improves earnings outlook, would make us more bullish. Sharply
higher oil price and adverse subsidy sharing would make us more bearish on OIL
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