Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Stock correction on market concerns provides buying opportunities
News reports indicate higher subsidy burden for upstream cos.
The Economic Times reported today that the Ministry of Finance (MoF) is
considering a proposal for state-owned upstream companies to bear
Rs567bn (one-third of the projected under-recoveries of Rs1701bn prior to
June 26 price hike and duty cuts) as their share of fuel under-recoveries.
This led to ONGC stock falling 2.9% today vs a 2.1% gain in Sensex.
Our checks suggest the proposal may not go through
We have spoken to our industry sources about this article and other
possible steps by the government to tackle the huge fuel under-recoveries
and believe the market is over-reacting. In particular, we found that:
1. The reported proposal is just one of the many possibilities that will
be considered through the year by various affected parties like oil
and finance ministries, upstream and downstream companies.
2. The actual share to be borne by upstream companies will be
decided only after the fiscal year-end (Mar’12) based on financial
position of the affected companies and total under-recovery.
3. In response to the MoF proposal, oil ministry has a similar
proposal for a total Rs567bn of under-recoveries to be shared by
upstream and downstream companies (OMCs) together.
4. Assuming OMCs take hit similar to FY11’s Rs69bn, the three
upstream companies would have to bear Rs498bn. ONGC’s FY12E
net realisation would then be US$49/bbl (FY12E-US$53.5/bbl).
5. Meanwhile, as per the upstream companies, the oil ministry issued
in August an indicative order for upstream companies to share
Rs75bn (33% of Rs225bn of total under-recoveries) for Q2FY12E.
6. The meeting of the group of ministers on capping the number of
subsidized LPG cylinders to 4-6 per family/ per year has been
postponed, but in light of the high concerns on the fiscal deficit,
we expect the proposal to go through soon.
Concerns create opportunity; Reiterate CL Buy on ONGC, HPCL
We reiterate our CL Buys on HPCL and ONGC as we believe both stocks are
pricing in the expected high under-recoveries and any positive action on
subsidy sharing should help these state-owned companies.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Stock correction on market concerns provides buying opportunities
News reports indicate higher subsidy burden for upstream cos.
The Economic Times reported today that the Ministry of Finance (MoF) is
considering a proposal for state-owned upstream companies to bear
Rs567bn (one-third of the projected under-recoveries of Rs1701bn prior to
June 26 price hike and duty cuts) as their share of fuel under-recoveries.
This led to ONGC stock falling 2.9% today vs a 2.1% gain in Sensex.
Our checks suggest the proposal may not go through
We have spoken to our industry sources about this article and other
possible steps by the government to tackle the huge fuel under-recoveries
and believe the market is over-reacting. In particular, we found that:
1. The reported proposal is just one of the many possibilities that will
be considered through the year by various affected parties like oil
and finance ministries, upstream and downstream companies.
2. The actual share to be borne by upstream companies will be
decided only after the fiscal year-end (Mar’12) based on financial
position of the affected companies and total under-recovery.
3. In response to the MoF proposal, oil ministry has a similar
proposal for a total Rs567bn of under-recoveries to be shared by
upstream and downstream companies (OMCs) together.
4. Assuming OMCs take hit similar to FY11’s Rs69bn, the three
upstream companies would have to bear Rs498bn. ONGC’s FY12E
net realisation would then be US$49/bbl (FY12E-US$53.5/bbl).
5. Meanwhile, as per the upstream companies, the oil ministry issued
in August an indicative order for upstream companies to share
Rs75bn (33% of Rs225bn of total under-recoveries) for Q2FY12E.
6. The meeting of the group of ministers on capping the number of
subsidized LPG cylinders to 4-6 per family/ per year has been
postponed, but in light of the high concerns on the fiscal deficit,
we expect the proposal to go through soon.
Concerns create opportunity; Reiterate CL Buy on ONGC, HPCL
We reiterate our CL Buys on HPCL and ONGC as we believe both stocks are
pricing in the expected high under-recoveries and any positive action on
subsidy sharing should help these state-owned companies.
No comments:
Post a Comment