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FY13 under-recoveries expected at Rs 1.6 trillion: MOST

Motilal Oswal has come out with its earnings estimates on oil and gas sector for September quarter FY13. According to the research firm, recent diesel price hike and limiting subsidized LPG cylinders will reduce under-recoveries.

October 13, 2012 / 04:41 PM IST
 
 
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Motilal Oswal has come out with its earnings estimates on oil and gas sector for September quarter FY13. According to the research firm, recent diesel price hike and limiting subsidized LPG cylinders will reduce under-recoveries. However, FY13 estimated under-recoveries remain high at INR1.6t (+14% YoY) v/s INR1.4t in FY12.

GRM up 36% QoQ, but YTD, both oil and GRM down 5% : Brent average crude price for 2QFY13 was marginally up 1% QoQ to USD110/bbl. However, volatility was high, led by Eurozone uncertainty, geopolitical developments, and QE3. Brent, after hitting a low of USD89/bbl in June-12, again rose to high of USD116/bbl in mid-Aug, before settling at current levels of USD111/bbl.

Similar to oil, product cracks also were volatile with regional benchmark, Reuters Singapore GRM averaging USD9.1/bbl v/s USD6.7/bbl in 1QFY13. Unless meaningful refinery closures happen, we expect margins to remain subdued as global utilization is likely to remain low led by lower demand and commissioning of new refineries. Petchem spreads subdued: In 2QFY13, polymer spreads over naphtha are down 7-8% QoQ, while integrated polyester spreads are down 2-4% QoQ. However, YoY, PE spreads are up 24% and PP spreads 7%. Polymer margins seem to have bottomed out and are expected to slowly recover, contingent on the global economic growth.

Lower LPG losses help QoQ drop in under-recoveries: We estimate 2QFY13 underrecoveries at INR390b, down 18% QoQ, primarily helped by lower LPG losses due to lower international prices. As the recent government decision to increase diesel price by INR5/ltr and limit subsidized LPG cylinder was effected on 13 September 2012, the meaningful positive impact of the same will be seen in subsequent quarters. Subsidy sharing would be again ad hoc as in the previous years, and it will be finalized in the last quarter. We model upstream sharing at 40% and downstream sharing at nil/8% for FY13/FY14, with the balance being the government's share.

Valuation and view: Recent diesel price hike and limiting subsidized LPG cylinders will reduce under-recoveries. However, FY13 estimated under-recoveries remain high at INR1.6t (+14% YoY) v/s INR1.4t in FY12. Nevertheless, OMC stocks are at attractive valuations and BPCL is our top pick for its E&P upside potential.

(INR Million)

Company

Sales

Net Profit

Sep.12

Var. % YoY

Var. % QoQ

Sep.12

Var. % YoY

Var. % QoQ

BPCL

571,811

35.2

4.9

10,183

LP

LP

Cairn India

48,725

83.7

9.7

28,308

271

-26

Chennai Petroleum

100,501

6.7

-8.9

2,962

304.7

LP

GAIL

111,932

15.4

0.9

8,364

-23.6

-26.2

Gujarat State Petronet

2,426

-13.6

-9.3

1,085

-16.1

-13.1

HPCL

496,111

34

12.6

11,403

LP

LP

IOC

1,115,444

25.1

15.5

41,570

LP

LP

Indraprastha Gas

8,530

42.9

12.2

866

12.2

1.9

MRPL

168,502

44.4

31.5

8,361

3365.2

LP

Oil India

25,886

-20.8

10.9

9,399

-17.4

1.1

ONGC

217,664

-3.8

8.4

64,009

-25.9

5.3

Petronet LNG

81,708

52.2

16.2

2,616

0.5

-3.4

Reliance Inds.

937,028

19.3

2

55,482

-2.7

24

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