Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Uncertainties persist yet stocks look
attractive
Higher crude prices are taking the under-recoveries
through the roof. At US$120/bbl and rupee-dollar
exchange rate of Rs50/US$, under-recoveries are
expected to shoot up past Rs2tn (without any price
hikes). We believe cash payments (subsidies) to the
OMCs would stress the government which would be in
excess of Rs1tn. Simultaneously, the collection from the
sector through duties, cess etc. is expected to be under
Rs1tn. Hence, we believe that the government will have
to resort to retail fuel price hikes thus supporting the
OMCs and upstream companies. Periodic price hikes
will reduce under-recoveries and relieve the stress on
the government as well as upstream players. We thus
maintain our positive stance on OMCs (BPCL, HPCL and
IOC), GAIL and upgrade the upstream companies (OIL
and ONGC) to ‘Buy’.
Crude price assumption for FY13E raised to
US$120/bbl: Embargo on Iranian crude has led to a
spike in crude prices which we believe will sustain in
FY13E. Without any near term solution to the Iranian
issue, we do not foresee softening of oil prices. Hence,
we have raised our crude price assumption from
US$104/bbl earlier to US$120/bbl for FY13E and for
FY14E from US$100/bbl earlier to US$110/bbl.
Under-recoveries to remain high at about Rs1.8tn
in FY13E: With high crude prices and average
exchange rate of Rs50/US$, under-recoveries are
expected to be about Rs1.8tn in FY13E taking into
account Rs3/lit and Rs25/cylinder hike in diesel and
domestic LPG prices respectively. Petrol price
changes are expected to happen periodically given the
high under-recoveries on petrol.
Collection for the central government to remain
stagnant: We believe a significant part of the
collection from the oil and gas sector (customs,
excise, cess etc.) would be utilised for financing
under-recoveries by the government in FY12E.
Ironically, due to high crude prices collections would
be lower than the subsidy payments of the
government (about Rs1.1tn) during FY13E. Hence,
the government will have to resort to retail fuel price
hikes to reduce its burden.
Outlook and valuations
Higher crude prices are likely to stay for the time being given the Iranian issue which is not likely to
resolve in near future. Although, part of the lost output from Iran would be made up by other oil
producing countries, this will not lead to lowering of oil prices. With higher crude prices, underrecoveries
are expected to remain high for the Indian oil and gas sector (over Rs1.8tn and Rs1.1tn for
FY13E and FY14E respectively). However, we believe that the government will act proactively to
reduce their subsidy burden (cash outflow) due to lower collection (through duties etc.) from the
sector.
With higher under-recoveries, the government will have to dole out higher amount of cash, to the
extent of over Rs1.0tn in FY13E. With lower collections from the sector and higher subsidy
payments, we believe the government will have to resort to regulated fuel price hikes. We thus
estimate Rs3/lit and Rs25/cylinder price hike in diesel and domestic LPG in FY13E respectively. Petrol
(deemed to be deregulated) price changes are expected to happen periodically given the underrecoveries
on petrol. Incremental price hikes in diesel, LPG and kerosene cannot be ruled out
though.
We believe that these price hikes in fuels would benefit the OMCs and upstream players and thus
the stocks are likely to witness momentum. Based on this premise, we have upgraded our numbers
for the OMCs and upstream players. We thus maintain our ‘Buy’ on the OMCs and GAIL while
upgrade the upstream players ONGC and OIL from ‘Hold’ to ‘Buy’.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Uncertainties persist yet stocks look
attractive
Higher crude prices are taking the under-recoveries
through the roof. At US$120/bbl and rupee-dollar
exchange rate of Rs50/US$, under-recoveries are
expected to shoot up past Rs2tn (without any price
hikes). We believe cash payments (subsidies) to the
OMCs would stress the government which would be in
excess of Rs1tn. Simultaneously, the collection from the
sector through duties, cess etc. is expected to be under
Rs1tn. Hence, we believe that the government will have
to resort to retail fuel price hikes thus supporting the
OMCs and upstream companies. Periodic price hikes
will reduce under-recoveries and relieve the stress on
the government as well as upstream players. We thus
maintain our positive stance on OMCs (BPCL, HPCL and
IOC), GAIL and upgrade the upstream companies (OIL
and ONGC) to ‘Buy’.
Crude price assumption for FY13E raised to
US$120/bbl: Embargo on Iranian crude has led to a
spike in crude prices which we believe will sustain in
FY13E. Without any near term solution to the Iranian
issue, we do not foresee softening of oil prices. Hence,
we have raised our crude price assumption from
US$104/bbl earlier to US$120/bbl for FY13E and for
FY14E from US$100/bbl earlier to US$110/bbl.
Under-recoveries to remain high at about Rs1.8tn
in FY13E: With high crude prices and average
exchange rate of Rs50/US$, under-recoveries are
expected to be about Rs1.8tn in FY13E taking into
account Rs3/lit and Rs25/cylinder hike in diesel and
domestic LPG prices respectively. Petrol price
changes are expected to happen periodically given the
high under-recoveries on petrol.
Collection for the central government to remain
stagnant: We believe a significant part of the
collection from the oil and gas sector (customs,
excise, cess etc.) would be utilised for financing
under-recoveries by the government in FY12E.
Ironically, due to high crude prices collections would
be lower than the subsidy payments of the
government (about Rs1.1tn) during FY13E. Hence,
the government will have to resort to retail fuel price
hikes to reduce its burden.
Outlook and valuations
Higher crude prices are likely to stay for the time being given the Iranian issue which is not likely to
resolve in near future. Although, part of the lost output from Iran would be made up by other oil
producing countries, this will not lead to lowering of oil prices. With higher crude prices, underrecoveries
are expected to remain high for the Indian oil and gas sector (over Rs1.8tn and Rs1.1tn for
FY13E and FY14E respectively). However, we believe that the government will act proactively to
reduce their subsidy burden (cash outflow) due to lower collection (through duties etc.) from the
sector.
With higher under-recoveries, the government will have to dole out higher amount of cash, to the
extent of over Rs1.0tn in FY13E. With lower collections from the sector and higher subsidy
payments, we believe the government will have to resort to regulated fuel price hikes. We thus
estimate Rs3/lit and Rs25/cylinder price hike in diesel and domestic LPG in FY13E respectively. Petrol
(deemed to be deregulated) price changes are expected to happen periodically given the underrecoveries
on petrol. Incremental price hikes in diesel, LPG and kerosene cannot be ruled out
though.
We believe that these price hikes in fuels would benefit the OMCs and upstream players and thus
the stocks are likely to witness momentum. Based on this premise, we have upgraded our numbers
for the OMCs and upstream players. We thus maintain our ‘Buy’ on the OMCs and GAIL while
upgrade the upstream players ONGC and OIL from ‘Hold’ to ‘Buy’.
No comments:
Post a Comment