Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Oil Refining & Marketing
Sing GRM at 15-week low; RIL
up US$1/bbl WoW but weak
Singapore GRM halved over last seven weeks to US$5.1/bbl
Reuters’ Singapore GRM has fallen by 51% since the week ended January 27
from US$10.3/bbl to US$5.1/bbl last week. Singapore GRM last week is at the
lowest level in 15 weeks. Singapore GRM in 4QTD is now at US$8.0/bbl. It has
been hit by a fall in diesel, jet fuel and fuel oil cracks. Fuel oil cracks have
declined the most (US$10.7/bbl) in the last seven weeks. Jet fuel and diesel
cracks are also down from peak levels in 4Q by US$3.7-5.0/bbl to US$13.7-
13.9/bbl. In the last 2-3 weeks diesel and jet fuel cracks are at the lowest level
since Nov-Dec’10.
RIL’s theoretical GRM up US$1.0/bbl WoW at US$4.5-5.7/bbl
RIL’s theoretical GRM last week at US$4.5-5.7/bbl is up US$1.0/bbl WoW with
higher end of the estimate being at US$0.6/bbl premium to Singapore GRM. RIL
has gained from Arab heavy being at US$0.4/bbl discount to Dubai and not
producing fuel oil (cracks down sharply). However, RIL’s GRM was boosted most
by our assumption that its new refinery uses Souedie crude (API of 24), which
was at US$6.3/bbl discount to Dubai. If use of Oriente crude (also API of 24) is
assumed, RIL’s GRM last week would be lower at US$3.6-4.7/bbl.
RIL’s theoretical GRM in Mar’12 lowest since Dec’09
RIL’s theoretical GRM to date in March 2012 at US$3.9-5.0/bbl is at the lowest
level since December 2009.
RIL’s 4QTD GRM below Singapore GRM and down YoY
RIL’s theoretical GRM in 4QTD at US$5.3-6.5/bbl is down US$2.7-3.9/bbl YoY
(US$9.2/bbl in 4Q FY11). It is also US$1.5-2.7/bbl below Reuters’ Singapore
GRM of US$8.0/bbl. RIL’s gain from QoQ product cracks rise is less than that of
Reuters’ product slate. Discount to Dubai of crude RIL uses is also QoQ lower.
RIL’s 4Q profit down 20-30% YoY at 4QTD GRM
RIL’s 4Q profit works out to Rs37.4-43.1bn at 4QTD theoretical GRM of US$5.3-
6.5/bbl and blended petrochemical margin of US$427/t (down 22% YoY in rupee
terms). It would mean 20-30% YoY fall in 4Q profit (4Q FY11: Rs53.8bn).
Downside to RIL’s FY13 EPS 10-20% if GRM at 4QTD level
Our FY13 EPS estimate for RIL assumes its GRM at US$8/bbl. If RIL’s FY13
GRM is at 4QTD FY12 level (ignoring shutdown) of US$5.7-6.8/bbl, its FY13 EPS
would be 10-20% below our estimate of Rs66.9.
R&M companies GRM up WoW and QoQ
BPCL and HPCL’s theoretical GRM last week was up WoW at US$3.1-3.
2/bbl. Their 4QTD theoretical GRM (including inventory gain) is also up QoQ at
US$5.8-5.9/bbl.
Retain Buy on HPCL and BPCL
BPCL inexpensive at 0.8x FY11 & FY12 adjusted book value
BPCL’s earnings outlook better than that of HPCL
In 9M FY12 though both BPCL and HPCL were in the red, BPCL’s loss at
Rs73.3/share was much lower than HPCL’s loss of Rs110/share. R&M
companies have always been kept in the black. We therefore expect HPCL to be
compensated for subsidy to ensure it is in the black. We believe BPCL’s EPS is
likely to be higher than HPCL by Rs25-30. Thus, its earnings outlook appears
better than that of HPCL. BPCL is also attractive in our view at just 0.8x FY11 and
FY12 adjusted (for value of E&P assets) book value. We retain our Buy rating on
BPCL
HPCL inexpensive at 0.8x FY11 and FY12 book value
We believe HPCL’s FY12 earnings outlook is poor despite the smart recovery in
GRM in 4QTD. However, HPCL appears to us inexpensive trading at just 0.8x
FY11 and FY12 book value. We retain our Buy rating on HPCL.
RIL’s theoretical GRM v/s actual
How reliable is theoretical GRM calculation?
RIL’s GRM higher than theoretical GRM in only 1 out of 12 quarters
Since we started calculating theoretical GRM in 2009, RIL’s GRM has been
higher than our theoretical range only in 1 quarter (3Q FY10) out of 12. It has
been within or below our range in other quarters. In the last three quarters the
comparison is as follows
In 1Q FY12 RIL's GRM was US$10.3/bbl vis-à-vis our theoretical GRM of
US$10.2-10.7/bbl
In 2Q RIL's GRM was US$10.1/bbl vis-à-vis our theoretical GRM of US$9.8-
10.2/bbl
In 3Q RIL's GRM was US$6.8/bbl vis-à-vis our theoretical GRM of US$5.9-
6.9/bbl
Thus in 9M FY12 RIL’s GRM has been within our theoretical estimate range.
Price objective basis & risk
BPCL (XBPCF; INR685.30; C-1-7)
Our PO of Rs803/share is based on a P/E of 9.5x on BPCL's FY12E consolidated
EPS (excluding dividend income from IGL and PLNG) of Rs35.4/share, in line
with the stock's three-year average P/E. Our PO includes the value of BPCL's
share in oil reserves in Wahoo block (Brazil) and gas resources in Mozambique at
Rs325/share. It also includes the market value of investments in Indraprastha
Gas (IGL), Petronet LNG (PLNG), Oil India (OIL) and cost of investment in the
Bina oil refinery of Rs142/share.
Upside risks: (1) Government compensation/grants are higher than our
expectations, (2) Government eliminates subsidies on all products, (3) Refining
margins are higher than forecast by us, (4) Rise in market prices of IGL and
PLNG. (5) Significant reserve accretion in BPCL's E&P exploration assets in India
and abroad. Downside risks: (1) Government does not issue enough
compensation, (2) government reverts to a cost-plus-based regulated pricing
mechanism, (3) steep decline in regional and, hence, BPCL's refining margins,
and (4) steep decline in the market price of IGL and PLNG.
Hindustan Petro. (XHTPF; INR292.95; C-1-7)
Our PO of Rs384 is based on PB of 1.0x on HPCL's FY12E book value. Upside
risks: (1) Significant reserve accretion in HPCL's E&P exploration assets in India
and abroad (2) Subsidy R&M companies have to bear is lower than assumed by
us or oil sector is fully deregulated , and (3) Refining margins are higher than
forecast by us. Downside risks: (1) Indian oil sector continues to be regulated and
HPCL is not adequately compensated for subsidies it has to bear, and (2) steep
decline in regional and hence HPCL's refining margins.
Reliance Inds (XRELF; INR760.55; B-2-7)
Our PO of Rs844 (GDR US$33.80) is based on a sum-of-the-parts valuation. It
includes EV of RIL's three businesses of Rs867/share and net debt of
Rs24/share. The EV of the refining, petrochemical and E&P business is
calculated on a DCF basis, using a WACC of 11.8pct. Refining and marketing
(Rs367) is 42pct of the EV, E&P valuation (Rs162) is 19pct, and petrochemicals
(Rs338) is 39pct. Downside risks are (1) refining and petrochemical margins
being lower than expected due to global economic slowdown (2) seven-year
income tax holiday being disallowed on gas production, which would mean lower
cash flow, profit and fair value, (3) lower-than expected oil price, and (4) large
acquisitions that are value dilutive. Upside risks are (1) refining and petrochemical
margins being better than expected, (2) higher-than expected oil price, (3)
significant reserve accretion in the next 12 months and (4) large acquisitions that
increase fair value significantly.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Oil Refining & Marketing
Sing GRM at 15-week low; RIL
up US$1/bbl WoW but weak
Singapore GRM halved over last seven weeks to US$5.1/bbl
Reuters’ Singapore GRM has fallen by 51% since the week ended January 27
from US$10.3/bbl to US$5.1/bbl last week. Singapore GRM last week is at the
lowest level in 15 weeks. Singapore GRM in 4QTD is now at US$8.0/bbl. It has
been hit by a fall in diesel, jet fuel and fuel oil cracks. Fuel oil cracks have
declined the most (US$10.7/bbl) in the last seven weeks. Jet fuel and diesel
cracks are also down from peak levels in 4Q by US$3.7-5.0/bbl to US$13.7-
13.9/bbl. In the last 2-3 weeks diesel and jet fuel cracks are at the lowest level
since Nov-Dec’10.
RIL’s theoretical GRM up US$1.0/bbl WoW at US$4.5-5.7/bbl
RIL’s theoretical GRM last week at US$4.5-5.7/bbl is up US$1.0/bbl WoW with
higher end of the estimate being at US$0.6/bbl premium to Singapore GRM. RIL
has gained from Arab heavy being at US$0.4/bbl discount to Dubai and not
producing fuel oil (cracks down sharply). However, RIL’s GRM was boosted most
by our assumption that its new refinery uses Souedie crude (API of 24), which
was at US$6.3/bbl discount to Dubai. If use of Oriente crude (also API of 24) is
assumed, RIL’s GRM last week would be lower at US$3.6-4.7/bbl.
RIL’s theoretical GRM in Mar’12 lowest since Dec’09
RIL’s theoretical GRM to date in March 2012 at US$3.9-5.0/bbl is at the lowest
level since December 2009.
RIL’s 4QTD GRM below Singapore GRM and down YoY
RIL’s theoretical GRM in 4QTD at US$5.3-6.5/bbl is down US$2.7-3.9/bbl YoY
(US$9.2/bbl in 4Q FY11). It is also US$1.5-2.7/bbl below Reuters’ Singapore
GRM of US$8.0/bbl. RIL’s gain from QoQ product cracks rise is less than that of
Reuters’ product slate. Discount to Dubai of crude RIL uses is also QoQ lower.
RIL’s 4Q profit down 20-30% YoY at 4QTD GRM
RIL’s 4Q profit works out to Rs37.4-43.1bn at 4QTD theoretical GRM of US$5.3-
6.5/bbl and blended petrochemical margin of US$427/t (down 22% YoY in rupee
terms). It would mean 20-30% YoY fall in 4Q profit (4Q FY11: Rs53.8bn).
Downside to RIL’s FY13 EPS 10-20% if GRM at 4QTD level
Our FY13 EPS estimate for RIL assumes its GRM at US$8/bbl. If RIL’s FY13
GRM is at 4QTD FY12 level (ignoring shutdown) of US$5.7-6.8/bbl, its FY13 EPS
would be 10-20% below our estimate of Rs66.9.
R&M companies GRM up WoW and QoQ
BPCL and HPCL’s theoretical GRM last week was up WoW at US$3.1-3.
2/bbl. Their 4QTD theoretical GRM (including inventory gain) is also up QoQ at
US$5.8-5.9/bbl.
Retain Buy on HPCL and BPCL
BPCL inexpensive at 0.8x FY11 & FY12 adjusted book value
BPCL’s earnings outlook better than that of HPCL
In 9M FY12 though both BPCL and HPCL were in the red, BPCL’s loss at
Rs73.3/share was much lower than HPCL’s loss of Rs110/share. R&M
companies have always been kept in the black. We therefore expect HPCL to be
compensated for subsidy to ensure it is in the black. We believe BPCL’s EPS is
likely to be higher than HPCL by Rs25-30. Thus, its earnings outlook appears
better than that of HPCL. BPCL is also attractive in our view at just 0.8x FY11 and
FY12 adjusted (for value of E&P assets) book value. We retain our Buy rating on
BPCL
HPCL inexpensive at 0.8x FY11 and FY12 book value
We believe HPCL’s FY12 earnings outlook is poor despite the smart recovery in
GRM in 4QTD. However, HPCL appears to us inexpensive trading at just 0.8x
FY11 and FY12 book value. We retain our Buy rating on HPCL.
RIL’s theoretical GRM v/s actual
How reliable is theoretical GRM calculation?
RIL’s GRM higher than theoretical GRM in only 1 out of 12 quarters
Since we started calculating theoretical GRM in 2009, RIL’s GRM has been
higher than our theoretical range only in 1 quarter (3Q FY10) out of 12. It has
been within or below our range in other quarters. In the last three quarters the
comparison is as follows
In 1Q FY12 RIL's GRM was US$10.3/bbl vis-à-vis our theoretical GRM of
US$10.2-10.7/bbl
In 2Q RIL's GRM was US$10.1/bbl vis-à-vis our theoretical GRM of US$9.8-
10.2/bbl
In 3Q RIL's GRM was US$6.8/bbl vis-à-vis our theoretical GRM of US$5.9-
6.9/bbl
Thus in 9M FY12 RIL’s GRM has been within our theoretical estimate range.
Price objective basis & risk
BPCL (XBPCF; INR685.30; C-1-7)
Our PO of Rs803/share is based on a P/E of 9.5x on BPCL's FY12E consolidated
EPS (excluding dividend income from IGL and PLNG) of Rs35.4/share, in line
with the stock's three-year average P/E. Our PO includes the value of BPCL's
share in oil reserves in Wahoo block (Brazil) and gas resources in Mozambique at
Rs325/share. It also includes the market value of investments in Indraprastha
Gas (IGL), Petronet LNG (PLNG), Oil India (OIL) and cost of investment in the
Bina oil refinery of Rs142/share.
Upside risks: (1) Government compensation/grants are higher than our
expectations, (2) Government eliminates subsidies on all products, (3) Refining
margins are higher than forecast by us, (4) Rise in market prices of IGL and
PLNG. (5) Significant reserve accretion in BPCL's E&P exploration assets in India
and abroad. Downside risks: (1) Government does not issue enough
compensation, (2) government reverts to a cost-plus-based regulated pricing
mechanism, (3) steep decline in regional and, hence, BPCL's refining margins,
and (4) steep decline in the market price of IGL and PLNG.
Hindustan Petro. (XHTPF; INR292.95; C-1-7)
Our PO of Rs384 is based on PB of 1.0x on HPCL's FY12E book value. Upside
risks: (1) Significant reserve accretion in HPCL's E&P exploration assets in India
and abroad (2) Subsidy R&M companies have to bear is lower than assumed by
us or oil sector is fully deregulated , and (3) Refining margins are higher than
forecast by us. Downside risks: (1) Indian oil sector continues to be regulated and
HPCL is not adequately compensated for subsidies it has to bear, and (2) steep
decline in regional and hence HPCL's refining margins.
Reliance Inds (XRELF; INR760.55; B-2-7)
Our PO of Rs844 (GDR US$33.80) is based on a sum-of-the-parts valuation. It
includes EV of RIL's three businesses of Rs867/share and net debt of
Rs24/share. The EV of the refining, petrochemical and E&P business is
calculated on a DCF basis, using a WACC of 11.8pct. Refining and marketing
(Rs367) is 42pct of the EV, E&P valuation (Rs162) is 19pct, and petrochemicals
(Rs338) is 39pct. Downside risks are (1) refining and petrochemical margins
being lower than expected due to global economic slowdown (2) seven-year
income tax holiday being disallowed on gas production, which would mean lower
cash flow, profit and fair value, (3) lower-than expected oil price, and (4) large
acquisitions that are value dilutive. Upside risks are (1) refining and petrochemical
margins being better than expected, (2) higher-than expected oil price, (3)
significant reserve accretion in the next 12 months and (4) large acquisitions that
increase fair value significantly.
No comments:
Post a Comment