Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● On 24 June, the government approved steps to reduce losses for
PSU refiners: a combination of price hikes and duty cuts. It raised
diesel prices by 8% and LPG and kerosene prices by 16%. Also,
the government cut customs duty on petroleum products and
crude, and excise duty on diesel.
● The increases were a bit lower than the 10% expected in diesel,
but are welcome. Credit Suisse India Oil & Gas analyst Sanjay
Mookim estimates total under-recoveries fall by US$5.3 bn for the
rest of 9M FY12. Cut in duties should benefit oil PSUs.
● The cut in duties effectively means government pays 100% of the
under-recoveries. Worse, the cut in crude duty is very broad. Net
result – fiscal deficit expectations are unchanged (5.5% of GDP vs
4.6% target: all else unchanged, and if crude stays at US$110).
● First round WPI impact 64 bp: Diesel is likely to drive a second
round of impact via freight. Diesel prices in India have lagged
international crude prices by far (Figure 3), and we may be done
for another year. Diesel car makers may take a breather, but the
trend should continue.
● The step would be negative for telecoms companies (Idea, RCom,
Bharti: 2-4% EPS impact – diesel gensets for towers) and banks
(100 bp increase in bond yields impacts earnings by 5-15%: SBI,
BoI would be the most impacted)
Fuel prices raised; duties re-jigged to help PSU refiners
On 24 June, the government approved steps to reduce losses for PSU
refiners. These were a combination of price hikes and duty cuts:
● Diesel prices were hiked by 8% (Rs3/litre impact at the pump ex.
taxes), LPG by 16% (Rs50/cylinder) and kerosene by 16%
(Rs2/litre).
● Customs duty on petroleum products were cut by 5% (from 7.5%
to 2.5% and from 10% to 5%) The 5% duty on crude has been
done away with. Excise duty on diesel has been cut from
Rs4.6/litre to Rs2/litre.
The price increases were somewhat lower than the 10% expected in
diesel, but should be welcome. CS India Oil & Gas analyst Sanjay
Mookim estimates total under-recoveries fall by US$5.3 bn for the rest
of FY12, a minor blip on the earlier estimated FY12 under-recoveries
of US$36-40 bn. The FY12 estimate would now be US$17 bn vs
US$23 bn earlier: with 1Q over, US$10 bn has already crystallised.
Sanjay estimates that the duty cuts add up to US$11 bn annualised.
On the US$5.5 bn that impact under-recoveries for PSU refiners, the
government is effectively taking a 100% hit in its budget (vs the 33%
rule on under-recoveries and 50% if it crosses a bound). Moreover,
with the crude customs duty reduction affecting other products as well,
the total revenue reduction is higher. The subsidy number would thus
be Rs675 bn (4Q11+ 9M FY12), vs the Rs200 bn budgeted. Thus, all
else remaining same, if oil price stays at US$110 for the rest of the
year, fiscal deficit would be 5.5% vs the 4.6% expected.
Inflation impact: First round effects relatively minor
Diesel, kerosene and LPG are together 6.3% of the WPI. The increases
should thus add 64 bp to the WPI YoY (Figure 2). It is interesting to note
that the Rs2/litre increase in prices last year was effective from 26 June
2010 – WPI YoY is unlikely to see any decline therefore.
Sectors impacted by the increase
● For implications on oil & gas companies please refer to India Oil &
Gas analyst Sanjay Mookim’s note published today.
● Telecom companies run their towers mostly on diesel gensets. An
8% increase in energy costs drives a 4-8% cut in profits (Bharti
4%, Reliance Comm 5% and Idea 8%). About half of their energy
costs are diesel, so they could see 2-4% impact on earnings.
● Banks – high fiscal deficits would push up bond yields: a 100 bp
rise would hurt bank earnings by 5-15%. SBI and BoI would be the
most impacted. Further, with inflation being higher, a pause in rate
hikes gets pushed out – a negative for banks.
● Autos – the delay in diesel price hikes (whereas petrol prices are
deregulated) had boosted sales of diesel cars. The heavy weather
around diesel price hikes suggests the trend may continue, but for
the near term such stocks (e.g., M&M) may take a breather.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● On 24 June, the government approved steps to reduce losses for
PSU refiners: a combination of price hikes and duty cuts. It raised
diesel prices by 8% and LPG and kerosene prices by 16%. Also,
the government cut customs duty on petroleum products and
crude, and excise duty on diesel.
● The increases were a bit lower than the 10% expected in diesel,
but are welcome. Credit Suisse India Oil & Gas analyst Sanjay
Mookim estimates total under-recoveries fall by US$5.3 bn for the
rest of 9M FY12. Cut in duties should benefit oil PSUs.
● The cut in duties effectively means government pays 100% of the
under-recoveries. Worse, the cut in crude duty is very broad. Net
result – fiscal deficit expectations are unchanged (5.5% of GDP vs
4.6% target: all else unchanged, and if crude stays at US$110).
● First round WPI impact 64 bp: Diesel is likely to drive a second
round of impact via freight. Diesel prices in India have lagged
international crude prices by far (Figure 3), and we may be done
for another year. Diesel car makers may take a breather, but the
trend should continue.
● The step would be negative for telecoms companies (Idea, RCom,
Bharti: 2-4% EPS impact – diesel gensets for towers) and banks
(100 bp increase in bond yields impacts earnings by 5-15%: SBI,
BoI would be the most impacted)
Fuel prices raised; duties re-jigged to help PSU refiners
On 24 June, the government approved steps to reduce losses for PSU
refiners. These were a combination of price hikes and duty cuts:
● Diesel prices were hiked by 8% (Rs3/litre impact at the pump ex.
taxes), LPG by 16% (Rs50/cylinder) and kerosene by 16%
(Rs2/litre).
● Customs duty on petroleum products were cut by 5% (from 7.5%
to 2.5% and from 10% to 5%) The 5% duty on crude has been
done away with. Excise duty on diesel has been cut from
Rs4.6/litre to Rs2/litre.
The price increases were somewhat lower than the 10% expected in
diesel, but should be welcome. CS India Oil & Gas analyst Sanjay
Mookim estimates total under-recoveries fall by US$5.3 bn for the rest
of FY12, a minor blip on the earlier estimated FY12 under-recoveries
of US$36-40 bn. The FY12 estimate would now be US$17 bn vs
US$23 bn earlier: with 1Q over, US$10 bn has already crystallised.
Sanjay estimates that the duty cuts add up to US$11 bn annualised.
On the US$5.5 bn that impact under-recoveries for PSU refiners, the
government is effectively taking a 100% hit in its budget (vs the 33%
rule on under-recoveries and 50% if it crosses a bound). Moreover,
with the crude customs duty reduction affecting other products as well,
the total revenue reduction is higher. The subsidy number would thus
be Rs675 bn (4Q11+ 9M FY12), vs the Rs200 bn budgeted. Thus, all
else remaining same, if oil price stays at US$110 for the rest of the
year, fiscal deficit would be 5.5% vs the 4.6% expected.
Inflation impact: First round effects relatively minor
Diesel, kerosene and LPG are together 6.3% of the WPI. The increases
should thus add 64 bp to the WPI YoY (Figure 2). It is interesting to note
that the Rs2/litre increase in prices last year was effective from 26 June
2010 – WPI YoY is unlikely to see any decline therefore.
Sectors impacted by the increase
● For implications on oil & gas companies please refer to India Oil &
Gas analyst Sanjay Mookim’s note published today.
● Telecom companies run their towers mostly on diesel gensets. An
8% increase in energy costs drives a 4-8% cut in profits (Bharti
4%, Reliance Comm 5% and Idea 8%). About half of their energy
costs are diesel, so they could see 2-4% impact on earnings.
● Banks – high fiscal deficits would push up bond yields: a 100 bp
rise would hurt bank earnings by 5-15%. SBI and BoI would be the
most impacted. Further, with inflation being higher, a pause in rate
hikes gets pushed out – a negative for banks.
● Autos – the delay in diesel price hikes (whereas petrol prices are
deregulated) had boosted sales of diesel cars. The heavy weather
around diesel price hikes suggests the trend may continue, but for
the near term such stocks (e.g., M&M) may take a breather.
No comments:
Post a Comment