Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Government indicates outline of the next level of pricing reforms
Petroleum, Finance ministers give indication of the next level of
fuel pricing reforms; diesel and LPG pricing targeted
The oil and finance ministers spoke to parliament on the next level of
reforms in fuel prices. The finance minister mentioned that apart from
kerosene (used for lighting by those without access to electricity) all other
types of fuel (roughly 75% of under-recovery) should be deregulated. The oil
minister expressed concerns about the misuse of subsidized diesel and wants
it to be restricted to farmers and transport trucks only. The finance minister
mentioned his openess to this dual pricing for diesel. We estimate passenger
cars to represent about 15% of diesel consumption and we expect a total
FY12E diesel under-recovery of around Rs600bn. While the implementation
would be a key, this is a step towards market-driven diesel prices, in our view.
We note Indian retail diesel prices are currently lower than most of the key
economies in Asia. The government is also considering an additional excise
duty on diesel cars and looking to fix the number of subsidized LPG cylinders
to 4-6 per family/per year. We estimate this could reduce the full year LPG
under-recovery of about Rs300bn by 40%.
1Q showed a higher fiscal deficit than government’s FY12E target
As per govt. data, the 1Q fiscal deficit was Rs 1620bn (~40% of budgeted
FY12). We believe lower tax collection and the delay in disinvestments
could pose a challenge in achieving the FY12 fiscal deficit target of 4.6%.
Further pricing reforms to add more clarity on cash flows of stateowned companies and likely add to earnings
We believe further fuel pricing reforms would bring in increased cash flows
to the state-owned oil companies. While the upstream companies would
benefit from a share of lower gross under-recovery, the oil marketing
companies would benefit from better cash flows leading to lower interest
costs and potentially a lower net under-recovery.
HPCL/ONGC are our top picks, followed by IOC and GAIL
We believe HPCL (CL-Buy) is a key beneficiary of fuel price reforms, with the
highest sales/refining volume ratio (FY12E:1.6x) among OMCs. Our 12-m
EV/EBITDA-based TP of Rs450 implies 17% upside. We also like ONGC (CL-Buy)
owing to improving oil realization, volume growth and attractive valuation. Our
12-m Director’s Cut-based TP of Rs340 implies 18% upside. Risks: oil price spike,
rise in inflation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Government indicates outline of the next level of pricing reforms
Petroleum, Finance ministers give indication of the next level of
fuel pricing reforms; diesel and LPG pricing targeted
The oil and finance ministers spoke to parliament on the next level of
reforms in fuel prices. The finance minister mentioned that apart from
kerosene (used for lighting by those without access to electricity) all other
types of fuel (roughly 75% of under-recovery) should be deregulated. The oil
minister expressed concerns about the misuse of subsidized diesel and wants
it to be restricted to farmers and transport trucks only. The finance minister
mentioned his openess to this dual pricing for diesel. We estimate passenger
cars to represent about 15% of diesel consumption and we expect a total
FY12E diesel under-recovery of around Rs600bn. While the implementation
would be a key, this is a step towards market-driven diesel prices, in our view.
We note Indian retail diesel prices are currently lower than most of the key
economies in Asia. The government is also considering an additional excise
duty on diesel cars and looking to fix the number of subsidized LPG cylinders
to 4-6 per family/per year. We estimate this could reduce the full year LPG
under-recovery of about Rs300bn by 40%.
1Q showed a higher fiscal deficit than government’s FY12E target
As per govt. data, the 1Q fiscal deficit was Rs 1620bn (~40% of budgeted
FY12). We believe lower tax collection and the delay in disinvestments
could pose a challenge in achieving the FY12 fiscal deficit target of 4.6%.
Further pricing reforms to add more clarity on cash flows of stateowned companies and likely add to earnings
We believe further fuel pricing reforms would bring in increased cash flows
to the state-owned oil companies. While the upstream companies would
benefit from a share of lower gross under-recovery, the oil marketing
companies would benefit from better cash flows leading to lower interest
costs and potentially a lower net under-recovery.
HPCL/ONGC are our top picks, followed by IOC and GAIL
We believe HPCL (CL-Buy) is a key beneficiary of fuel price reforms, with the
highest sales/refining volume ratio (FY12E:1.6x) among OMCs. Our 12-m
EV/EBITDA-based TP of Rs450 implies 17% upside. We also like ONGC (CL-Buy)
owing to improving oil realization, volume growth and attractive valuation. Our
12-m Director’s Cut-based TP of Rs340 implies 18% upside. Risks: oil price spike,
rise in inflation.
No comments:
Post a Comment