Mar 05, 2013, 09.55 AM IST
TK Ananth Kumar, CFO, Oil India says that there have been talks regarding the increase in gas prices for quite some time and the FM indicated that the gas-pricing policy would be finalised soon.
If gas prices increased by USD 4, it would fetch the PSU Rs 1,500 crore, he adds. Ananth Kumar expects the FY13 under-recovery at Rs 8,000 crore and has received net realisation of USD 53 in the first nine-months of FY13.
“We are exploring two acquisition-opportunities at the moment for which talks are at an advanced stage and may be concluded by FY13-end. We have failed to maintain growth in crude production in the past two quarters. . However, we have taken action to ensure that from next year onwards the growth momentum is revived and maintained,” he told CNBC-TV18.
Below is the edited transcript of the interview on CNBC-TV18.
Q: What are the indications from the ministry regarding the gas price? Are you expecting it to be nearly doubled as recommended by the Rangarajan Committee to USD 8 or do you think a compromise will be reached?
A: We await the final outcome. We understand that a note has been put up and the Cabinet is to take the final decision which will be a big positive for oil companies, especially Oil India.
Q: What are the benefits for Oil India? With every dollar increase in gas, by how much will Oil India profit or earnings per share (EPS) go up? In your opinion, what should the price be?
A: At the gross level, each dollar-increase should fetch us close to about Rs 375 crore and at the net level about Rs 225 crore. So if it goes up by about USD 4, it should result in Rs 1,500 crore gross and close to Rs 1,000 crore net. Our EPS would increase by about Rs 15 per share which is quite positive. We hope, considering the huge investments that we have lined up in exploration and production, this increase would certainly allow us to aggressively deploy funds for exploration.
Q: The Budget subsidy Bill provided for all of FY14 is Rs 61,800 crore which is a jump over Rs 43,000 crore provided for the current year. Do you have any clarity on what the government will have to bear as the fourth-quarter subsidy?
A: The current year under-recovery is expected to be around Rs 1,60,000 crore. Out of that, the upstream share could possibly be at Rs 60,000 crore taking into account the first nine months’ trend of Rs 45,000 crore that we have borne till date. Keeping in mind the likely subsidy-sharing of Rs 1,00,000 crore from government, we don’t expect significant increase in our share for the fourth quarter.
Q: If the fourth quarter subsidy is Rs 15,000 crore, how much will you get and what will be your under-recovery?
A: Our net realisation in the first nine months was at USD 53. So, if the fourth quarter subsidy is at USD 56 for Oil India, our net realisation will at USD 54-USD 55 because the crude price has been slightly high this quarter. Overall, the under-recovery for the current year for Oil India should be around Rs 8,000 crore.
Q: In that case, will the upstream share remain at 37-38 percent or higher?
A: If the total under recovery Rs 1,60,000 crore and if government is to bear about Rs 96,000 crore to Rs 1,00,000 crore, the upstream share should be at 38 - 39 percent.
Q: Did the government indicate in any way of not give you as much as it in the first nine months?
A: We have not heard anything from the government yet. But we have requested that it not be increased.
Q: There have been talks of the company planning an international acquisition. Is anything slated for FY14 and what is the quantum of the acquisition lined up?
A: We made a small acquisition in October 2012 and we are aggressively pursuing some discovered, developed and producing areas. At the moment, two such acquisition opportunities are in advanced stage of discussions. So if everything goes well, this we should be able to close at least two of acquisition deals this calendar year.
Q: How much of the Rs 14,000-crore cash reserves will use to for the acquisition?
A: We have earmarked a Rs 7,000-crore budget for acquisition and we are capable of deploying more funds. We also have the ability to borrow funds for acquisition. So, if the right opportunity comes along we have the ability use more funds than budgeted.
Q: Since you have a cash reserve Rs 14,000 crore, is it not likely that the government will ask you to pay a higher dividend ?
A: We have been paying reasonably attractive dividend to our shareholders at a payout ratio of 33-34 percent. Our dividend policy will depend on investors’ expectations as well capex requirements.
Q: So dividend policy remains the same?
Q: What indication did you send out to your shareholders during the share-sale issue about what your subsidy burden might be?
A: A representative from the ministry accompanied us at the roadshows conducted for the offer-for-sale. We informed our shareholders and investors about the positive reforms introduced by government from September 2012 and that the likelihood of such reforms to continue which could result in reducing the under-recovery burden and help oil companies.
Q: Do you expect any recovery in terms of crude production because in Q3 your EBITDA performance slipped by close to 20 percent because of the unrest in Assam?
A: Unfortunately, we couldn't maintain the levels of growth sustained over the last three-to-four years, this year. We are expected to close this year with negative crude oil production to the extent of 3-3.5 percent and flat gas production due to extraneous reasons. However, we have taken action to ensure that from next year onwards the growth momentum is revived and maintained.
Oil India stock price
On December 06, 2013, Oil India closed at Rs 462.75, up Rs 0.65, or 0.14 percent. The 52-week high of the share was Rs 629.70 and the 52-week low was Rs 415.00.
The company's trailing 12-month (TTM) EPS was at Rs 53.52 per share as per the quarter ended September 2013. The stock's price-to-earnings (P/E) ratio was 8.65. The latest book value of the company is Rs 319.59 per share. At current value, the price-to-book value of the company is 1.45.
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