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Oil India -

  • In spite of a steep hike in subsidy sharing to 47% for Q3 FY12, OIL India posted positive topline & bottomline growth y-o-y and also beat our estimates due to lower than expected other expenses.Q3 FY12 crude/gas production 0%/2.7% ahead of estimatesQ3FY12 crude production of 0.962 MMT was down 0.029 MMT q-o-q but up by 0.026 MMT y-o-y. Thus, crude sales of 0.95 MMT was down 0.016 MMT q-o-q but up by 0.034 MMT y-o-y. Gas production of 0.676 bcm was flat q-o-q & up 0.06 bcm y-o-y; similarly, gas sales of 0.544 bcm was flat q-o-q but up 0.066 bcm y-o-y. LPG sales at 13,434 KT were down 240 KT q-o-q but up by 1,060 KT y-o-y.Q3 FY12 subsidy doubles q-o-q to $53.1/bbl ($53.6/bbl expected)
  • Q3 FY12 subsidy burden of Rs 18.5 bn ($53.1/bbl) translated into 12.1% of Q3 FY12 upstream sector subsidy burden of Rs 152.6 bn. While it was double the subsidy burden of $26.2/bbl in Q2 FY12, it was almost triple the Q3 FY11 figure of $18.5/bbl. Thus, net realization plunged from $86.3/bbl in Q2 FY12 to $57/bbl in Q3 FY12 ($56.5/bbl expected).
  • Q3 FY12 net sales at Rs 25.9 bn, 3% ahead of estimates.Revenue of Rs 25.9 bn in Q3 FY12 translated into growth of 4.7% y-o-y, but was lower by 22.9% q-o-q. Crude & gas sales for Q3 FY12 stood at Rs 20.8 bn & Rs 3 bn respectively, due to consistent production figures in the face of a steep subsidy burden. LPG sales for the quarter dropped to Rs 0.13 bn due to increase in the subsidy on LPG. Transportation sales of Rs 0.8 bn was down 8% q-o-q, but up 18% y-o-y owing to upward revision in the transportation tariff for the crude oil trunk line.

Upstream subsidy sharing for Q4 FY12 expected to be same as Q3 FY12

  • The upstream sector's share of the gross under recoveries, which was fixed at ~33% during FY08-10, had been increased suddenly to ~39% in FY11. Since our FY12 & FY13 estimates of gross under-recovery at Rs 1,297 bn & Rs 1,138 bn are significantly higher than the gross under recovery of Rs 782 bn in FY11, we assume 39% of the gross subsidy burden to be borne by the upstream sector going forward. We expect the upstream sector to again bear 47% of Q4 FY12 under recoveries, thus, taking the FY12 upstream subsidy share to 39% of total under recoveries.

Outlook and Valuation

  • We believe the stock would react to news flow regarding the subsidy sharing pattern that would emerge over the course of this year. We expect revenue & PAT to post FY11-14 CAGR of 10.7% & 12.5% respectively. We raise our FY12 & FY13 EPS estimates to Rs 151.8 and Rs 157.5 in FY12 & FY13 respectively. We maintain our BUY rating with a target price of Rs 1,529. Our price target translates into EV/boe of $ 6.1/boe and FY12E & FY13E P/E of 10.1x and 9.7x respectively.

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