Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
1QFY12 results
IOC’s 1QFY12 net loss of Rs37.2bn was larger than our estimate. Weak
refining and petchem performance, a large inventory write-down in the
refinery, higher than estimated interest expenses and lower other income
were key drags. While decline in crude prices help the macro for all state
owned oil & gas stocks, we continue to prefer the upstream SOEs; the
R&Ms have larger EPS sensitivity to a change in subsidy sharing formula
while large crude price corrections may also predicate inventory losses.
Further, given declining return ratios, IOC’s 1.3x PB is unattractive. U-PF.
1QFY12 PAT came lower than our estimate
IOC’s 1QFY12 net loss of Rs37.2bn was larger than our estimate. Lower than
expected core GRMs (US$7.1/bbl cf. US$8.5/bbl), a large inventory writedown
(US$2.35/bbl impact on GRMs, Rs11bn) and poor petchem Ebit (loss of
Rs4.1bn, +144%QoQ) weighed on performance despite Rs14bn in product
inventory gains. Higher than expected interest costs (Rs10.4bn, +20%QoQ,
higher rates and debt) and lower interest income also pulled down profits.
Fall in crude to lower under-recovery but inventory losses will rise
Driven by rise in concerns around global growth and in turn oil demand, crude
prices have corrected by +10% in Aug-11. While this improves the macro for
all SOEs in India by cutting under-recoveries, refiners like IOC would also be
impacted by a rise in inventory losses. We continue to prefer upstream
stocks, therefore, over the downstream SOEs as a play on this theme.
Uncertainty on subsidy framework is a headwind
While upstream sharing reverted to one-third in 1QFY12 from 39% in FY11,
lower government support at 34.5% dragged IOC into losses. We model
government’s share at 55% for FY12 (downstream 11.7%) but note that this
framework will be uncertain till May-12. With a 1ppt change impacting FY12
EPS by 3%, IOC’s FY12 EPS will be indeterminable for another nine months.
Maintain U-PF; prefer upstream over downstream
As high capex will keep IOC FCF negative and pressure return ratios even in a
benign subsidy scenario, its 1.3x FY12 PB appears unattractive. Nonetheless,
decline in crude prices, possibility of a cap on subsidised LPG volumes or
newsflow around likelihood of formalisation of a subsidy sharing formula may
benefit all state owned oil & gas stocks. However, we would prefer to play
these through upstream names because of their higher historical stability and
lower earnings sensitivity to a change in the subsidy formula. Maintain U-PF.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
1QFY12 results
IOC’s 1QFY12 net loss of Rs37.2bn was larger than our estimate. Weak
refining and petchem performance, a large inventory write-down in the
refinery, higher than estimated interest expenses and lower other income
were key drags. While decline in crude prices help the macro for all state
owned oil & gas stocks, we continue to prefer the upstream SOEs; the
R&Ms have larger EPS sensitivity to a change in subsidy sharing formula
while large crude price corrections may also predicate inventory losses.
Further, given declining return ratios, IOC’s 1.3x PB is unattractive. U-PF.
1QFY12 PAT came lower than our estimate
IOC’s 1QFY12 net loss of Rs37.2bn was larger than our estimate. Lower than
expected core GRMs (US$7.1/bbl cf. US$8.5/bbl), a large inventory writedown
(US$2.35/bbl impact on GRMs, Rs11bn) and poor petchem Ebit (loss of
Rs4.1bn, +144%QoQ) weighed on performance despite Rs14bn in product
inventory gains. Higher than expected interest costs (Rs10.4bn, +20%QoQ,
higher rates and debt) and lower interest income also pulled down profits.
Fall in crude to lower under-recovery but inventory losses will rise
Driven by rise in concerns around global growth and in turn oil demand, crude
prices have corrected by +10% in Aug-11. While this improves the macro for
all SOEs in India by cutting under-recoveries, refiners like IOC would also be
impacted by a rise in inventory losses. We continue to prefer upstream
stocks, therefore, over the downstream SOEs as a play on this theme.
Uncertainty on subsidy framework is a headwind
While upstream sharing reverted to one-third in 1QFY12 from 39% in FY11,
lower government support at 34.5% dragged IOC into losses. We model
government’s share at 55% for FY12 (downstream 11.7%) but note that this
framework will be uncertain till May-12. With a 1ppt change impacting FY12
EPS by 3%, IOC’s FY12 EPS will be indeterminable for another nine months.
Maintain U-PF; prefer upstream over downstream
As high capex will keep IOC FCF negative and pressure return ratios even in a
benign subsidy scenario, its 1.3x FY12 PB appears unattractive. Nonetheless,
decline in crude prices, possibility of a cap on subsidised LPG volumes or
newsflow around likelihood of formalisation of a subsidy sharing formula may
benefit all state owned oil & gas stocks. However, we would prefer to play
these through upstream names because of their higher historical stability and
lower earnings sensitivity to a change in the subsidy formula. Maintain U-PF.
No comments:
Post a Comment