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State oil companies have increased petrol prices by | 3.1-3.3 per litre with
effect from today, compelled by higher Brent crude oil prices and rupee
depreciation against the US dollar, resulting in higher costs. Petrol will
now cost more than | 70 per litre in metro cities like Mumbai, Kolkata and
Chennai whereas in Delhi it will cost | 66.8 per litre where the local taxes
are lower. Petrol rates have been increased for the ninth time since June
last year (when petrol prices were decontrolled) causing it to move up by
more than 39% since then. The last petrol price hike came on May 15
when oil companies raised prices by | 5 a litre. Diesel prices, which are
still regulated, remain unchanged at | 41.29 per litre in Delhi.
Empowered group of ministers (EGoM) meeting holds the key
An Empowered group of ministers (EGoM) meeting under the
chairmanship of Finance Minister Pranab Mukherjee would soon decide
on enforcing the plan to cut subsidy on kerosene and cooking gas
subsidised LPG cylinders. The subsidy on kerosene and LPG stood at |
41,225 crore in FY11. The proposal is to sell kerosene at market price and
compensate the poor by directly paying them cash using the unique
identification number. The proposed scheme will be launched in seven
states next month and will extend to the remaining states by April 2012.
The proposal also entails limiting supply of subsidised LPG cylinders to
four to six per household in a year at a subsidised price of | 395.35 in
Delhi. For any more requirement, they will have to pay an additional price
of | 267 per cylinder at current market prices. These proposals, if
implemented, would have a medium to long term positive impact on state
run oil marketing companies.
Higher Brent crude oil prices and weaker rupee, a risk to our estimates
We estimate gross under-recoveries of ~| 1,01,900 crore and ~| 71,200
crore in FY12E and FY13E, respectively, at US$100 per barrel Brent crude
oil prices (| 45 per US$). However, if crude oil prices and the rupee
remain at current levels, our estimates of gross under-recoveries would
see an upward revision causing a downside risk to our earnings. In case
Brent crude oil prices are at US$115 per barrel (| 47 per US$), we expect
gross under-recoveries of ~| 1,37,100 crore and ~| 1,40,000 crore in
FY12E and FY13E, respectively. We expect EPS of BPCL and HPCL at |
59.7 and | 54.6, respectively, in FY13E. We have valued OMCs based on
average of P/BV multiple and P/E multiple. We have valued BPCL at | 726
with a HOLD rating and HPCL at | 471, with a BUY rating.
Exhibit 1: Petrol Prices
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
State oil companies have increased petrol prices by | 3.1-3.3 per litre with
effect from today, compelled by higher Brent crude oil prices and rupee
depreciation against the US dollar, resulting in higher costs. Petrol will
now cost more than | 70 per litre in metro cities like Mumbai, Kolkata and
Chennai whereas in Delhi it will cost | 66.8 per litre where the local taxes
are lower. Petrol rates have been increased for the ninth time since June
last year (when petrol prices were decontrolled) causing it to move up by
more than 39% since then. The last petrol price hike came on May 15
when oil companies raised prices by | 5 a litre. Diesel prices, which are
still regulated, remain unchanged at | 41.29 per litre in Delhi.
Empowered group of ministers (EGoM) meeting holds the key
An Empowered group of ministers (EGoM) meeting under the
chairmanship of Finance Minister Pranab Mukherjee would soon decide
on enforcing the plan to cut subsidy on kerosene and cooking gas
subsidised LPG cylinders. The subsidy on kerosene and LPG stood at |
41,225 crore in FY11. The proposal is to sell kerosene at market price and
compensate the poor by directly paying them cash using the unique
identification number. The proposed scheme will be launched in seven
states next month and will extend to the remaining states by April 2012.
The proposal also entails limiting supply of subsidised LPG cylinders to
four to six per household in a year at a subsidised price of | 395.35 in
Delhi. For any more requirement, they will have to pay an additional price
of | 267 per cylinder at current market prices. These proposals, if
implemented, would have a medium to long term positive impact on state
run oil marketing companies.
Higher Brent crude oil prices and weaker rupee, a risk to our estimates
We estimate gross under-recoveries of ~| 1,01,900 crore and ~| 71,200
crore in FY12E and FY13E, respectively, at US$100 per barrel Brent crude
oil prices (| 45 per US$). However, if crude oil prices and the rupee
remain at current levels, our estimates of gross under-recoveries would
see an upward revision causing a downside risk to our earnings. In case
Brent crude oil prices are at US$115 per barrel (| 47 per US$), we expect
gross under-recoveries of ~| 1,37,100 crore and ~| 1,40,000 crore in
FY12E and FY13E, respectively. We expect EPS of BPCL and HPCL at |
59.7 and | 54.6, respectively, in FY13E. We have valued OMCs based on
average of P/BV multiple and P/E multiple. We have valued BPCL at | 726
with a HOLD rating and HPCL at | 471, with a BUY rating.
Exhibit 1: Petrol Prices
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