Buy Stocks of BPCL on dips for medium term time period. The stock analysis based on BPCL’s 3QFY12 results gives rationale behind this recommendation.
As everybody knows, huge chunk of revenue and profit for BPCL (Bharat Petroleum Corporation Limited) depends on subsidy that Government of India (GOI) allocates to it for petroleum products. This allocation from GOI has increased and due to this, BPCL reported 3QFY12 profit of Rs.3140 crores.
For 4QFY12, BPCL is expected to receive compensation from GOI on account of under-recoveries by downstream companies.
BPCL had reported Gross Refining Margin (GRM) of US $1.6/barrel in previous quarter. In 3QFY12, this GRM has improved to US $3.5/ barrel. It is a big improvement.
BPCL is also involved into E&P (exploration & production) business and it is certainly exciting looking at its prospects. Currently BPCL is involved in E&P in Brazil and Mozambique and it is expected that these activities will see more appraisal and exploration work in FY12.
It is expected that GOI will increase prices of Petrol and Diesel after assembly elections are over in Uttar Pradesh and other states (populist measures by corrupt government to play elections!). This will further help BPCL in improving its bottom line.
BPCL would be one of the better stocks to buy in Petroleum sector. One may buy stocks on dips from current stock price of Rs.659 for medium term. The target stock price over one year could be around Rs.750.
You may want to read:
Buy Stocks of Va Tech Wabag
Stock Analysis - Bharti Airtel
Stock Analysis – ONGC
Union Bank – Stock Analysis with Target Stock Price
Share Market Stock Tips - Buy Stocks of Chambal Fertilisers
Free Stock Market Tips – Buy HDIL for short term
Blue Chip Stock Analysis - Infosys
Large Cap Stock To Buy - Dr. Reddy’s Laboratories
Buy Stocks of Bank of Baroda
Showing posts with label Oil-Gas. Show all posts
Showing posts with label Oil-Gas. Show all posts
Stock Analysis – ONGC
Some notes based on an equity research report from one of the leading stock broker about ONGC and stock price target for one year time period.
ONGC has reported 3QFY12 PAT of Rs.6740 crore, which includes a onetime gain of Rs.3140 crore from Cairn India as royalty disbursement.
Net realization for ONGC on domestic oil production has been at USD 45/barrel.
Upstream share of subsidy for 9 months stands at 38%.
Depreciation and amortization value stands at Rs.4530 crores. It is much higher due to dry well expenses on five deepwater wells.
Production in Syria has come to a halt due to political tension and production in Sudan also declined sharply. This is good enough to cast a doubt on FY13 production growth, which may offset gains from higher crude oil prices for OVL. Decline/stoppage of production at ONGC Videsh Ltd (OVL) is a dampener in results and future numbers.
Gas production in domestic business remains stable and subsidy should be a non- event, provided it continues at 38%. However, if the average subsidy for FY12 rises to 44% or higher, this could be a concern on stock price. Other risks could be higher than expected under- recoveries and lower than expected production from certain OVL assets.
One may Buy Stocks of ONGC for target stock price of Rs.322 over one year.
You may want to read:
Union Bank – Stock Analysis with Target Stock Price
Share Market Stock Tips - Buy Stocks of Chambal Fertilisers
Free Stock Market Tips – Buy HDIL for short term
Blue Chip Stock Analysis - Infosys
Large Cap Stock To Buy - Dr. Reddy’s Laboratories
Buy Stocks of Bank of Baroda
IRB Infra – Stock Analysis and Result Update
ONGC has reported 3QFY12 PAT of Rs.6740 crore, which includes a onetime gain of Rs.3140 crore from Cairn India as royalty disbursement.
Net realization for ONGC on domestic oil production has been at USD 45/barrel.
Upstream share of subsidy for 9 months stands at 38%.
Depreciation and amortization value stands at Rs.4530 crores. It is much higher due to dry well expenses on five deepwater wells.
Production in Syria has come to a halt due to political tension and production in Sudan also declined sharply. This is good enough to cast a doubt on FY13 production growth, which may offset gains from higher crude oil prices for OVL. Decline/stoppage of production at ONGC Videsh Ltd (OVL) is a dampener in results and future numbers.
Gas production in domestic business remains stable and subsidy should be a non- event, provided it continues at 38%. However, if the average subsidy for FY12 rises to 44% or higher, this could be a concern on stock price. Other risks could be higher than expected under- recoveries and lower than expected production from certain OVL assets.
One may Buy Stocks of ONGC for target stock price of Rs.322 over one year.
You may want to read:
Union Bank – Stock Analysis with Target Stock Price
Share Market Stock Tips - Buy Stocks of Chambal Fertilisers
Free Stock Market Tips – Buy HDIL for short term
Blue Chip Stock Analysis - Infosys
Large Cap Stock To Buy - Dr. Reddy’s Laboratories
Buy Stocks of Bank of Baroda
IRB Infra – Stock Analysis and Result Update
Selan Exploration : Stock to buy in 2011
I had published a post Selan Oil Exploration: Soaked in Crude almost three years back as stock analysis for investment. It was at Rs. 150 at that time. The stock trades at around 400 now. I just thought to research a bit on it for current scenario and I found it recently recommended as multibagger stock to buy in 2011 by Ashish Chugh on CNBC-TV18. Let's see what he says.
Ashish Chugh believes that even at the current price this stock may turnout to be a potential multi-bagger stock.
The financials of Selan Exploration for the past two years have been almost flat. There was not much increase in either production. This is mainly because of the fluctuating oil prices. The revenues and profits are inline with the oil prices but there has not been any substantial increase in production in the last two years.
Selan exploration is doing 3D contour mapping for past 2 years of not just the Bakrol field, which is giving them major production as of now but for some other fields also. The new technologies which are available enables the company to identify the reservoirs where if drilling is done will give them about 10-15 times more oil than what the current wells are producing.
To calculate roughly, the company is doing about 2.5 lakh barrels every year from about 20 wells, which means that each well is giving them close to 12,000-13,000 barrels, and the new wells are capable of producing 1-1.5 lakh barrels per year, this could translate (if the company starts drilling two new wells) to double their production.
If company starts drilling wells in next 3-6 months, 10 wells would almost quadruple their oil production. This thing may get start reflecting in the company’s topline and the bottom line in probably year 2011-12. If you see the valuations at which the recent deals have taken place, if you look at Cairn-Vedanta deal, if you apply just 50% of that valuation to only the Bakrol field where we have the data for 2P reserves you get a mind boggling figure.
At the current valuation it may just be a fraction of the valuation for the Bakrol field and leave aside the other fields which are still virgin where no data has been declared and I believe this is a stock where institutional investors will find value even when the stock goes to four figure mark because by that time the production would have got ramped up significantly. Probably the 2P reserves data for the other fields might also get announced by the company and the financial numbers would start looking a lot better than what they are now. This is a company where the drilling is happening or the production is happening just in one field, which is a Bakrol field—operating margins are anywhere between 80-85%.
Once the ramp-up happens and with oil prices being steady and at higher numbers, I think this maybe a stock to watch out for in the years to come. The only thing is that as of now there are a few unknowns; the first is that when they start drilling is something, which nobody knows about but I believe that since they have already spent about two years in data acquisition drilling can happen in the next probably three to six-months. Oil exploration by nature is a risky business but I think the risk is getting mitigated because of the fact that all the fields are proven fields. So, in the years to come, we may see a massive scale up in the production of the company. This makes Selan exploration a stock to buy or at least a stock to watch out for, for the future.
Any correction in stock price towards Rs. 350 would definitely be a nice opportunity to buy stocks of Selan exploration.
Ashish Chugh believes that even at the current price this stock may turnout to be a potential multi-bagger stock.
The financials of Selan Exploration for the past two years have been almost flat. There was not much increase in either production. This is mainly because of the fluctuating oil prices. The revenues and profits are inline with the oil prices but there has not been any substantial increase in production in the last two years.
Selan exploration is doing 3D contour mapping for past 2 years of not just the Bakrol field, which is giving them major production as of now but for some other fields also. The new technologies which are available enables the company to identify the reservoirs where if drilling is done will give them about 10-15 times more oil than what the current wells are producing.
To calculate roughly, the company is doing about 2.5 lakh barrels every year from about 20 wells, which means that each well is giving them close to 12,000-13,000 barrels, and the new wells are capable of producing 1-1.5 lakh barrels per year, this could translate (if the company starts drilling two new wells) to double their production.
If company starts drilling wells in next 3-6 months, 10 wells would almost quadruple their oil production. This thing may get start reflecting in the company’s topline and the bottom line in probably year 2011-12. If you see the valuations at which the recent deals have taken place, if you look at Cairn-Vedanta deal, if you apply just 50% of that valuation to only the Bakrol field where we have the data for 2P reserves you get a mind boggling figure.
At the current valuation it may just be a fraction of the valuation for the Bakrol field and leave aside the other fields which are still virgin where no data has been declared and I believe this is a stock where institutional investors will find value even when the stock goes to four figure mark because by that time the production would have got ramped up significantly. Probably the 2P reserves data for the other fields might also get announced by the company and the financial numbers would start looking a lot better than what they are now. This is a company where the drilling is happening or the production is happening just in one field, which is a Bakrol field—operating margins are anywhere between 80-85%.
Once the ramp-up happens and with oil prices being steady and at higher numbers, I think this maybe a stock to watch out for in the years to come. The only thing is that as of now there are a few unknowns; the first is that when they start drilling is something, which nobody knows about but I believe that since they have already spent about two years in data acquisition drilling can happen in the next probably three to six-months. Oil exploration by nature is a risky business but I think the risk is getting mitigated because of the fact that all the fields are proven fields. So, in the years to come, we may see a massive scale up in the production of the company. This makes Selan exploration a stock to buy or at least a stock to watch out for, for the future.
Any correction in stock price towards Rs. 350 would definitely be a nice opportunity to buy stocks of Selan exploration.
Large Cap Stock Analysis - GAIL
Checkout why stock investment in GAIL should be an easy investing decision to make for any conservative and defensive investor.
GAIL India would definitely bare a "buy stocks" status with one year target stock price to Rs.541.
This is primarily due to higher than expected regulated transmission tariffs, a boost in gas trading margins and resilient petrochemicals business. It has always been considered as a defensive stock to buy as its business is exposed to the domestic market in India.
Company’s low debt levels and strong cash flows help it to embark on aggressive capex plans without stretching its balance sheet. Revenue estimates for FY11 and FY12 are expected to go up by 49% and 67% respectively due to the pass through of doubling of APM (administered price mechanism) gas prices traded by GAIL.
Operating profit of the company in FY12 is expected to jump by 45% due to a 43% increase in gas transmission margin estimates. Profit margin from petrochemical business may also get a boost due to capacity expansion and higher pricing.
Market Cap 61235.75
* EPS (TTM) 24.75
* P/E 19.51
* P/C 16.54
* Book Value 141.19
* Price/Book 3.42
Div(%) 70.00%
* Div Yield(%) 1.45
Market Lot 1.00
Face Value 10.00
Industry P/E 15.42
Currently, the stocks trades at 18.1 P/E of FY11 earnings and at 14.3 P/E of FY 12 expected earnings. The valuation looks attractive with reasonable upside in one year time frame.
GAIL India would definitely bare a "buy stocks" status with one year target stock price to Rs.541.
This is primarily due to higher than expected regulated transmission tariffs, a boost in gas trading margins and resilient petrochemicals business. It has always been considered as a defensive stock to buy as its business is exposed to the domestic market in India.
Company’s low debt levels and strong cash flows help it to embark on aggressive capex plans without stretching its balance sheet. Revenue estimates for FY11 and FY12 are expected to go up by 49% and 67% respectively due to the pass through of doubling of APM (administered price mechanism) gas prices traded by GAIL.
Operating profit of the company in FY12 is expected to jump by 45% due to a 43% increase in gas transmission margin estimates. Profit margin from petrochemical business may also get a boost due to capacity expansion and higher pricing.
Market Cap 61235.75
* EPS (TTM) 24.75
* P/E 19.51
* P/C 16.54
* Book Value 141.19
* Price/Book 3.42
Div(%) 70.00%
* Div Yield(%) 1.45
Market Lot 1.00
Face Value 10.00
Industry P/E 15.42
Currently, the stocks trades at 18.1 P/E of FY11 earnings and at 14.3 P/E of FY 12 expected earnings. The valuation looks attractive with reasonable upside in one year time frame.
Stock Analysis - Gujarat State Petronet
GSPL is a pioneer in developing energy transportation infrastructure and connecting natural gas supply basins and LNG terminals to growing markets. Here is company stock analysis to help you make decision on for your stock investment portfolio.
It is the first pipeline company operating on an open access basis and is a pure transmission network with systematic and seamless pipelines across Gujarat. It sources gas from traders, producers and LNG terminals and supplies them to user industries such as power, fertiliser, steel, chemical plants and to local distribution companies.
The Indian natural gas market is still underdeveloped but is slowly emerging as one of the largest gas markets in the world. According to Hydrocarbon Vision 2025, the share of natural gas would increase to 20% of total primary energy consumption by 2025. Gas pipeline companies, like Gas Authority of India (GAIL), Gujarat Gas and, of course, Reliance Industries, will grow as more pipelines are laid and more gas flows through them. GSPL already has a gas network of 1,400km in one of the fastest-growing areas of the country, especially since natural gas is a prime energy source in Gujarat. About 35% of India’s natural gas is consumed in Gujarat. GSPL is commissioning another 500km of pipeline over the next 18 months and will benefit from the tax concessions given to pipeline companies in the Finance Act 2009.
GSPL has consistently announced excellent financial results, thanks to higher gas output throughout and rising tariff, forcing investment analysts to revise their profit forecasts for the company. In the September quarter, revenues grew 115% and operating profit grew 139%, backed by an extremely high operating margin of 87%. GSPL’s volumes jumped due to the flow of KG-Basin gas; this will continue to increase. New and expanded sources of revenues would be: increased gas supply from the KG-Basin and LNG from Petronet’s Dahej terminal. Currently, GSPL charges around Rs915/tscm (thousand standard cubic metres) which is expected to remain stable.
Assuming stable tariff and higher throughput, GSPL may clock an EPS of around Rs9 for FY10. At the current price, of around Rs82, the stock seems to be valued reasonably and one may consider for long term investing.
Checkout: Stocks To Buy For 2010 - Let's Share Ideas
Go back to: Stocks To Buy Now For 2010 Investment Portfolio
It is the first pipeline company operating on an open access basis and is a pure transmission network with systematic and seamless pipelines across Gujarat. It sources gas from traders, producers and LNG terminals and supplies them to user industries such as power, fertiliser, steel, chemical plants and to local distribution companies.
The Indian natural gas market is still underdeveloped but is slowly emerging as one of the largest gas markets in the world. According to Hydrocarbon Vision 2025, the share of natural gas would increase to 20% of total primary energy consumption by 2025. Gas pipeline companies, like Gas Authority of India (GAIL), Gujarat Gas and, of course, Reliance Industries, will grow as more pipelines are laid and more gas flows through them. GSPL already has a gas network of 1,400km in one of the fastest-growing areas of the country, especially since natural gas is a prime energy source in Gujarat. About 35% of India’s natural gas is consumed in Gujarat. GSPL is commissioning another 500km of pipeline over the next 18 months and will benefit from the tax concessions given to pipeline companies in the Finance Act 2009.
GSPL has consistently announced excellent financial results, thanks to higher gas output throughout and rising tariff, forcing investment analysts to revise their profit forecasts for the company. In the September quarter, revenues grew 115% and operating profit grew 139%, backed by an extremely high operating margin of 87%. GSPL’s volumes jumped due to the flow of KG-Basin gas; this will continue to increase. New and expanded sources of revenues would be: increased gas supply from the KG-Basin and LNG from Petronet’s Dahej terminal. Currently, GSPL charges around Rs915/tscm (thousand standard cubic metres) which is expected to remain stable.
Assuming stable tariff and higher throughput, GSPL may clock an EPS of around Rs9 for FY10. At the current price, of around Rs82, the stock seems to be valued reasonably and one may consider for long term investing.
Checkout: Stocks To Buy For 2010 - Let's Share Ideas
Go back to: Stocks To Buy Now For 2010 Investment Portfolio
Stock Analysis of Gail - Stock Valuations Are High Now
Gail continues to remain a fundamentally strong company, its rich valuations are now indicating a limited upside in the short term. It is not advisable to buy stocks of Gail now for new investments.
Gail is a large cap growth stock. The company is entering a heavy investment phase in its core business to quadruple its gross block in five years. At the same time, the subsidies and E&P (exploration and production) expenditure have raised uncertainties over its earnings. Fresh investments should be avoided at the current valuation.
BUSINESS:
Gail operates India’s largest natural gas pipeline network with a current length of 7,200 km and a transmission capacity of 150 million metric standard cubic metres per day (MMSCMD). It also produces over 1.3 million tonnes of liquid hydrocarbons including LPG and 4.1 lakh tonnes of polyethylene per annum.
In a bid to secure its raw materials, the company has also invested in 30 exploration blocks including operatorship in two. The company is investing in the entire value chain of the natural gas business and owns promoter’s stakes in Petronet LNG and seven city gas distribution companies including Indraprastha Gas. The company has also floated a subsidiary, Gail Gas, for CNG stations along highways. Its 70% subsidiary, Brahmaputra Cracker, recently obtained financial closure for its 280,000-tpa polymer unit in Assam with an investment of Rs 5,460 crore.
The Petroleum and Natural Gas Regulatory Board (PNGRB), constituted in October ‘07, has laid out rules for determining tariffs for existing and new pipelines with effect from November ‘08. When the change takes place, Gail will have to account for its impact on profits with retrospective effect.
FUTURE PLANS:
The company is expanding its pipeline network substantially to add another 6,600 km of pipelines within the next three years. In addition, it is investing in its E&P blocks besides investing in its joint venture projects such as Brahmaputra Cracker and ONGC Petro Additions. The projected capital expenditure for the next five years is Rs 49,155 crore - almost thrice its current gross block.
In the near term, the rising production from Reliance Industries’ KG basin fields will bring in additional transmission revenues for the company, while any E&P success could add to future growth visibility. But rest of its projects will take long to generate returns.
FINANCIALS:
Over the last three years, the company has spent an average of Rs 270 crore annually on the E&P business towards survey and dry well expenditure. So far, in the first nine months of FY10, it has written off Rs 108 crore. As a result, the company is likely to write-off another Rs 150 crore in the March ‘10 quarter. The company has been cash rich with over Rs 3,000 crore of annual operating cash flows. However, its ambitious investment plans for the next five years will necessitate it to raise debt of Rs 28,700 crore in the next five years.
Since FY04, Gail is sharing subsidy on LPG and has so far contributed Rs 8,200 crore on a cumulative basis. Subsidy sharing has always remained the most influential factor for Gail’s profits and which will remain equally uncertain in future as in the past. A reduction in subsidy burden was the key driver of Gail’s good performance in the December ‘09 quarter. Over the last five years, the company’s net sales have grown at a cumulative annual growth rate (CAGR) of 15% and net profit at a CAGR of 10%. In the nine months ended December ‘09, the company’s profits are only marginally higher than that of the year-ago period.
STOCK VALUATIONS:
At the current market price, the scrip is trading at a price-to-earnings multiple (P/E) of 17.7. This is comparable with its smaller peers such as Gujarat Gas, Gujarat State Petronet and Indraprastha Gas. Based on the estimated earnings for FY11, the scrip is trading at a P/E of 14.1.
Considering the uncertainties attached to the earnings, this valuation is not attractive for buying stocks for fresh investments in the scrip.
Source: ET Investor Guide
Gail is a large cap growth stock. The company is entering a heavy investment phase in its core business to quadruple its gross block in five years. At the same time, the subsidies and E&P (exploration and production) expenditure have raised uncertainties over its earnings. Fresh investments should be avoided at the current valuation.
BUSINESS:
Gail operates India’s largest natural gas pipeline network with a current length of 7,200 km and a transmission capacity of 150 million metric standard cubic metres per day (MMSCMD). It also produces over 1.3 million tonnes of liquid hydrocarbons including LPG and 4.1 lakh tonnes of polyethylene per annum.
In a bid to secure its raw materials, the company has also invested in 30 exploration blocks including operatorship in two. The company is investing in the entire value chain of the natural gas business and owns promoter’s stakes in Petronet LNG and seven city gas distribution companies including Indraprastha Gas. The company has also floated a subsidiary, Gail Gas, for CNG stations along highways. Its 70% subsidiary, Brahmaputra Cracker, recently obtained financial closure for its 280,000-tpa polymer unit in Assam with an investment of Rs 5,460 crore.
The Petroleum and Natural Gas Regulatory Board (PNGRB), constituted in October ‘07, has laid out rules for determining tariffs for existing and new pipelines with effect from November ‘08. When the change takes place, Gail will have to account for its impact on profits with retrospective effect.
FUTURE PLANS:
The company is expanding its pipeline network substantially to add another 6,600 km of pipelines within the next three years. In addition, it is investing in its E&P blocks besides investing in its joint venture projects such as Brahmaputra Cracker and ONGC Petro Additions. The projected capital expenditure for the next five years is Rs 49,155 crore - almost thrice its current gross block.
In the near term, the rising production from Reliance Industries’ KG basin fields will bring in additional transmission revenues for the company, while any E&P success could add to future growth visibility. But rest of its projects will take long to generate returns.
FINANCIALS:
Over the last three years, the company has spent an average of Rs 270 crore annually on the E&P business towards survey and dry well expenditure. So far, in the first nine months of FY10, it has written off Rs 108 crore. As a result, the company is likely to write-off another Rs 150 crore in the March ‘10 quarter. The company has been cash rich with over Rs 3,000 crore of annual operating cash flows. However, its ambitious investment plans for the next five years will necessitate it to raise debt of Rs 28,700 crore in the next five years.
Since FY04, Gail is sharing subsidy on LPG and has so far contributed Rs 8,200 crore on a cumulative basis. Subsidy sharing has always remained the most influential factor for Gail’s profits and which will remain equally uncertain in future as in the past. A reduction in subsidy burden was the key driver of Gail’s good performance in the December ‘09 quarter. Over the last five years, the company’s net sales have grown at a cumulative annual growth rate (CAGR) of 15% and net profit at a CAGR of 10%. In the nine months ended December ‘09, the company’s profits are only marginally higher than that of the year-ago period.
STOCK VALUATIONS:
At the current market price, the scrip is trading at a price-to-earnings multiple (P/E) of 17.7. This is comparable with its smaller peers such as Gujarat Gas, Gujarat State Petronet and Indraprastha Gas. Based on the estimated earnings for FY11, the scrip is trading at a P/E of 14.1.
Considering the uncertainties attached to the earnings, this valuation is not attractive for buying stocks for fresh investments in the scrip.
Source: ET Investor Guide
Reliance Industries - Stock Analysis
Anand Rathi stock trading broker and investment research firm has recommended to `Hold` stocks of Reliance Industries (RIL) with target price of Rs 1,120 on Jan. 24, 2010.
The stock broking house expects growth in the E&P segment to continue in coming quarters and refining performance to improve on rising throughput and stabilizing margins, petrochemicals might underperform given rising West Asian (Mid-East) capacities.
With D6 volume now averaging 60m cmd, the broker house expects RIL to meet the full year (FY10) target of 40m cmd production. With GAIL`s HBJ pipeline still far from complete, the estimate of 80m cmd for FY11 might be hit slightly, neutralized possibly, though, by higher volumes later.
Though Reliance`s (Q,N,C,F)* refining margin was higher than our estimate (USD 5.5), EBIT margin at USD 2.4/bbl matched our estimate, implying higher costs.
The investment research team expects RIL`s 4Q refining margin performance to improve from 9M levels, in line with rising regional and global margins, on the back of higher winter demand.
With E&P going strong and refining possibly past the worst, the broking house sees a coming petrochemicals capacity glut and possible RNRL case judgement to be key factors weighing on valuations. Any possible inorganic or organic growth plans would also be key to valuations.
The company slightly revised FY10-12e earnings by 1-2%, to adjust for 9M performance.
The company has raised target price to Rs 1,120, adjusting for debt and investments. Maintain Hold.
The stock broking house expects growth in the E&P segment to continue in coming quarters and refining performance to improve on rising throughput and stabilizing margins, petrochemicals might underperform given rising West Asian (Mid-East) capacities.
With D6 volume now averaging 60m cmd, the broker house expects RIL to meet the full year (FY10) target of 40m cmd production. With GAIL`s HBJ pipeline still far from complete, the estimate of 80m cmd for FY11 might be hit slightly, neutralized possibly, though, by higher volumes later.Though Reliance`s (Q,N,C,F)* refining margin was higher than our estimate (USD 5.5), EBIT margin at USD 2.4/bbl matched our estimate, implying higher costs.
The investment research team expects RIL`s 4Q refining margin performance to improve from 9M levels, in line with rising regional and global margins, on the back of higher winter demand.
With E&P going strong and refining possibly past the worst, the broking house sees a coming petrochemicals capacity glut and possible RNRL case judgement to be key factors weighing on valuations. Any possible inorganic or organic growth plans would also be key to valuations.
The company slightly revised FY10-12e earnings by 1-2%, to adjust for 9M performance.
The company has raised target price to Rs 1,120, adjusting for debt and investments. Maintain Hold.
Alphageo India - Stock Analysis With Stock Rating
After dismal performance in the last fiscal, Alphageo India’s business improved in FY2010 (the current fiscal) and the growth momentum continued in Q2FY2010 despite it being a seasonally weak quarter.
The spectacular performance in Q2FY2010 was largely on the back of execution of Rs39 crore order from the Oil and Natural Gas Corporation (ONGC) in Cauvery basin (the same was highlighted in the stock update dated September 24, 2009).
What’s more, the outlook for the second half is also encouraging. Though the ONGC order worth Rs43 crore has still not commenced and could get delayed to the next fiscal, the company is likely to show robust growth in H2FY2010 on the back of execution of orders from private operators like Essar group (Rs9.4 crore), Adani group (Rs17 crore) and Selan Exploration Technology (Rs12 crore).
The order pipeline from fresh tenders is also healthy and the company hopes to announce more new orders from private operators in the coming months. The efforts to reduce the company’s dependence on public sector oil companies (like ONGC and Oil India) are yielding results now both in terms of better revenue growth outlook and improved utilisation of resources (seismic crews).
Stock Valuations
Given its strong performance in Q2FY2010, healthy order book position and improving client profile, we have significantly upgraded the estimates for FY2010 and FY2011. Consequently, we have upgraded our recommendation to Buy stocks with the price target of Rs. 297 (12x FY2011 earnings).
Source: Sharekhan stock trading broker
The spectacular performance in Q2FY2010 was largely on the back of execution of Rs39 crore order from the Oil and Natural Gas Corporation (ONGC) in Cauvery basin (the same was highlighted in the stock update dated September 24, 2009).
What’s more, the outlook for the second half is also encouraging. Though the ONGC order worth Rs43 crore has still not commenced and could get delayed to the next fiscal, the company is likely to show robust growth in H2FY2010 on the back of execution of orders from private operators like Essar group (Rs9.4 crore), Adani group (Rs17 crore) and Selan Exploration Technology (Rs12 crore).
The order pipeline from fresh tenders is also healthy and the company hopes to announce more new orders from private operators in the coming months. The efforts to reduce the company’s dependence on public sector oil companies (like ONGC and Oil India) are yielding results now both in terms of better revenue growth outlook and improved utilisation of resources (seismic crews).
Stock Valuations
Given its strong performance in Q2FY2010, healthy order book position and improving client profile, we have significantly upgraded the estimates for FY2010 and FY2011. Consequently, we have upgraded our recommendation to Buy stocks with the price target of Rs. 297 (12x FY2011 earnings).
Source: Sharekhan stock trading broker
Praj Industries - Is It A Multibagger Stock To Buy?
Our fellow investor, an investor by profession, Mr. Ramesh Hariharan, Director, Leadcap Ventures (Leading Market Research organisation) asked me few days back to opine on Praj Industries. I had posted a note and research report on Praj earlier on this blog. I would have simply redirected all of you to earlier posts if I would not have something new and interesting about Praj this time around. Here is something that could prove a precious piece of input for your decision making.
Before moving forward, I would like to recap what information we all had on Praj industries and it's ethanol initiatives. Go thru these earlier posts to get a glimpse.
PRAJ INDUSTRIES - Safe Investment for 2009
Praj Industries- Giant in making - Bio-Diesel segment
The most enticing aspect of this company is the name of some of its shareholders. JM Financial Mutual Fund stake at 5.25%, Tata Capital holds 7.33%, Rakesh Jhunjhunwala has a 7.3% stake and Vinod Khosla holds 6.15%. Morgan Stanley holds 2.77%. This makes one wonder what is so special about the company?
Pramod Chaudhary, founder of Praj Industries, is ostensibly in the middle of a mad race to change the world we live in. And he hopes to be the first to reach the finish line. At stake is a market estimated at 189 billion litres by 2020 according to a US government study. Chaudhary wants to take a good shot at being remembered by history textbooks as one of the men who weaned the world away from fossil fuels like petrol and diesel.
I want to draw your attention towards a few facts that I read thru recently. I want you to read this with atmost attention.
On the face of it, Praj seems to have done well for itself. Over the last six years, it built a presence on five continents and accounts for a 50 percent market share in the Indian sub-continent, South and Central America (except Brazil), a quarter of the market in Europe and a fifth in the US. To that extent, the trust investors have reposed in Praj stands vindicated. It would also seem Chaudhary is the kind of man who takes nothing for granted. He has a team of 60 scientists and Rs. 60 crore working on second generation biofuels from ethanol. It is tempting, therefore, to imagine a world Chaudhary and Praj Industries will change. That assumption, however, is a few miles away from truth.
A few years ago, some smart entrepreneurs, Chaudhary included, had figured out how to isolate ethanol from food crops like sugarcane, wheat, soya and palm oil. With a large addressable market, businesses were quick to latch on to the men who ran these businesses and exploited every edible commodity they could to extract ethanol out of it.
They were wrong. As demand from the biofuel ndustry accelerated, commodity prices shot through the roof, endangering availability of food to vast populations. Between January 2002 and February 2008, the World Bank Food Price Index went up 140 percent. “The increase was caused by a confluence of factors. But the most important was the large increase in biofuel production…” concluded a World Bank report. Add one more variable to this situation and what emerges is a Molotov cocktail — an explosive, ironically created by lighting petrol in a glass bottle.
Innovators thought hard for a workaround. Some researchers and entrepreneurs saw the writing on the wall early and started shifting their focus to research on extracting ethanol out of non-food resources like algae, wood chips, redundant corn stalk, and everything else the industry calls biomass. For instance, there are universities in the US and Europe researching simpler and more efficient ways to make ethanol from waste like bagasse — the leftover pulp from sugar cane. The Michigan State University is giving switch grass — a kind of grass that grows abundantly in the wild — a shot. In the United States alone, 23 new companies are tinkering around with second generation technologies to extract ethanol.
But the Holy Grail remains elusive. The problem is a technical one. It essentially involves breaking down the lignin component in biomass like the wood chips researchers are experimenting with. An excellent source of energy, lignin is a complex chemical compound, integral to wood and the secondary wall in plants. But there seems to be no quick and efficient way to break lignin down. “Everything depends on the ability of companies to effectively and economically break down lignin,” says Sudarshan Ananth of Wipro Ecoenergy.
And this is precisely where Praj finds itself on the horns of a dilemma. To maintain its position as one of the leaders in the ethanol business, it needs the breakthrough by 2010. That will give the company just enough time to demonstrate its capabilities and get into business by 2012 — a deadline, which the American government has set ethanol producers doing business in the US to start making the transition to second generation biofuels. Not meeting the deadline will involve ceding ground to competitors from other parts of the world desperate for a slice of America — potentially, the largest and most lucrative biofuel market.
People who have evaulated Praj from close quarters don’t think much about its prospects. Praj hasn’t invented anything, says the representative of a leading corporate, which had once considered an investment in the company. The only reason, he says, Praj has gotten as far as it has in the ethanol business is because it had the good sense to tie up with Vogelbusch, an Austrian company that was a pioneer in this area. “At best, Praj is a project engineering company. But it is definitely not a research and development company,” he says. “I didn’t find that kind of depth,” he adds, even as he insists he remains unnamed.
Kishore Chaukar declined comment and Vinod Khosla did not return calls or emails on Praj. “In any case, Mr. Khosla is not going to be their business development head. I can see intent, but no game plan,” said an investor who had decided against betting on Praj. He too, did not wish to be named. To queer the pitch for Praj further, a few companies in other parts of the world have made significant progress. Verenium, a Massachusetts-based company, is leading the cellulosic biofuels race in North America. It already has a demo plant in place and will begin construction on commercial facilities next year. That is expected to go on-stream in 2011— just in time to meet the 2012 deadline the American government has set itself to start transitioning to second generation biofuels. Verenium has managed to keep production cost down at $2 to the gallon (one gallon equals 3.79 litres). This does not include profits, amortisation and cost of annuity.
I had taken up excerpts from Forbes India magazine in which their research team had published a detailed story on Praj industries and it's prospects. You can read the entire story here: Praj Industries analysis in Forbes India
So what should be our take on Praj? Should we buy stocks or not? If you look at the high level picture, it seems Praj have some definite targets to meet by next year to have early movers advantage in their business of Ethanol extraction technoogy. If they succede to do so, definitely they would have advantage against many more such companies who are working on the same.
At the same time, I would want to draw your attention towards technology itself. The drive behind Ethanol and bio diesels has been at it's peak in past few years due to higher oil prices and finite oil reserves. This Oil movement lead the research towards alternative energy sources. I am not sure if you had read a news flashed 3 days back in all newspapers about a car being launched by General motors which gives you mileage of almost 100 KMS/LTR. It is an hybrid car which uses electricity and petrol as combination of fuels to run. Solar energy and Hydrogen cell powered energy sources are under research. One would argue that these technologies are very expensive and so not feasible for mass production. But the answer lies in the statement itself. The day it comes under mass production, prices would automatically get reduced drastically. Remember the example of CD/DVD's? I remember a dvd used to cost Rs. 500 few (5) years back and it comes at Rs. 25 only now. LCD TV's used to cost above a lakh around 3 years back, now it is almost at 15-20K levels.
The car mentioned above costs around US $40000, so approx. 20 Lakhs. Such options could cost like a normal car in next few years. So would Ethanol and bio diesel be as precious and lucrative businesses at that time as they are now? They don't seem to be. And what if tomorrow a scientist succedes to run a car which is Hydrogen fuelled? Meaning it would not need petrol/diesel at all. European countries and USA are working day and night to invent such options that would reduce their fuel dependancy on Arabic countries. And it is not only about cars. If car can run; any such engine can run on alternative fuels. In such scenarios, Ethanol and Bio diesel would remain just an additive in conventional fossil fuels and nothing more than that.
Coming back to our question of "To buy stocks or not?" ;)
There is no harm in being part of a business which have potential to grow at good rate for some time ahead till it gets competition discussed above. But I would recommend to have little portion only of your investment portfolio occupied by this stock and not to bet entirely on it. Don't forget Golden rule of investment: Never put all your eggs in one basket!
This is entirely my opinion and would love to hear your take on this.
Before moving forward, I would like to recap what information we all had on Praj industries and it's ethanol initiatives. Go thru these earlier posts to get a glimpse.
PRAJ INDUSTRIES - Safe Investment for 2009
Praj Industries- Giant in making - Bio-Diesel segment
The most enticing aspect of this company is the name of some of its shareholders. JM Financial Mutual Fund stake at 5.25%, Tata Capital holds 7.33%, Rakesh Jhunjhunwala has a 7.3% stake and Vinod Khosla holds 6.15%. Morgan Stanley holds 2.77%. This makes one wonder what is so special about the company?
Pramod Chaudhary, founder of Praj Industries, is ostensibly in the middle of a mad race to change the world we live in. And he hopes to be the first to reach the finish line. At stake is a market estimated at 189 billion litres by 2020 according to a US government study. Chaudhary wants to take a good shot at being remembered by history textbooks as one of the men who weaned the world away from fossil fuels like petrol and diesel.
I want to draw your attention towards a few facts that I read thru recently. I want you to read this with atmost attention.
On the face of it, Praj seems to have done well for itself. Over the last six years, it built a presence on five continents and accounts for a 50 percent market share in the Indian sub-continent, South and Central America (except Brazil), a quarter of the market in Europe and a fifth in the US. To that extent, the trust investors have reposed in Praj stands vindicated. It would also seem Chaudhary is the kind of man who takes nothing for granted. He has a team of 60 scientists and Rs. 60 crore working on second generation biofuels from ethanol. It is tempting, therefore, to imagine a world Chaudhary and Praj Industries will change. That assumption, however, is a few miles away from truth.
A few years ago, some smart entrepreneurs, Chaudhary included, had figured out how to isolate ethanol from food crops like sugarcane, wheat, soya and palm oil. With a large addressable market, businesses were quick to latch on to the men who ran these businesses and exploited every edible commodity they could to extract ethanol out of it.
They were wrong. As demand from the biofuel ndustry accelerated, commodity prices shot through the roof, endangering availability of food to vast populations. Between January 2002 and February 2008, the World Bank Food Price Index went up 140 percent. “The increase was caused by a confluence of factors. But the most important was the large increase in biofuel production…” concluded a World Bank report. Add one more variable to this situation and what emerges is a Molotov cocktail — an explosive, ironically created by lighting petrol in a glass bottle.
Innovators thought hard for a workaround. Some researchers and entrepreneurs saw the writing on the wall early and started shifting their focus to research on extracting ethanol out of non-food resources like algae, wood chips, redundant corn stalk, and everything else the industry calls biomass. For instance, there are universities in the US and Europe researching simpler and more efficient ways to make ethanol from waste like bagasse — the leftover pulp from sugar cane. The Michigan State University is giving switch grass — a kind of grass that grows abundantly in the wild — a shot. In the United States alone, 23 new companies are tinkering around with second generation technologies to extract ethanol.
But the Holy Grail remains elusive. The problem is a technical one. It essentially involves breaking down the lignin component in biomass like the wood chips researchers are experimenting with. An excellent source of energy, lignin is a complex chemical compound, integral to wood and the secondary wall in plants. But there seems to be no quick and efficient way to break lignin down. “Everything depends on the ability of companies to effectively and economically break down lignin,” says Sudarshan Ananth of Wipro Ecoenergy.
And this is precisely where Praj finds itself on the horns of a dilemma. To maintain its position as one of the leaders in the ethanol business, it needs the breakthrough by 2010. That will give the company just enough time to demonstrate its capabilities and get into business by 2012 — a deadline, which the American government has set ethanol producers doing business in the US to start making the transition to second generation biofuels. Not meeting the deadline will involve ceding ground to competitors from other parts of the world desperate for a slice of America — potentially, the largest and most lucrative biofuel market.
People who have evaulated Praj from close quarters don’t think much about its prospects. Praj hasn’t invented anything, says the representative of a leading corporate, which had once considered an investment in the company. The only reason, he says, Praj has gotten as far as it has in the ethanol business is because it had the good sense to tie up with Vogelbusch, an Austrian company that was a pioneer in this area. “At best, Praj is a project engineering company. But it is definitely not a research and development company,” he says. “I didn’t find that kind of depth,” he adds, even as he insists he remains unnamed.
Kishore Chaukar declined comment and Vinod Khosla did not return calls or emails on Praj. “In any case, Mr. Khosla is not going to be their business development head. I can see intent, but no game plan,” said an investor who had decided against betting on Praj. He too, did not wish to be named. To queer the pitch for Praj further, a few companies in other parts of the world have made significant progress. Verenium, a Massachusetts-based company, is leading the cellulosic biofuels race in North America. It already has a demo plant in place and will begin construction on commercial facilities next year. That is expected to go on-stream in 2011— just in time to meet the 2012 deadline the American government has set itself to start transitioning to second generation biofuels. Verenium has managed to keep production cost down at $2 to the gallon (one gallon equals 3.79 litres). This does not include profits, amortisation and cost of annuity.
I had taken up excerpts from Forbes India magazine in which their research team had published a detailed story on Praj industries and it's prospects. You can read the entire story here: Praj Industries analysis in Forbes India
So what should be our take on Praj? Should we buy stocks or not? If you look at the high level picture, it seems Praj have some definite targets to meet by next year to have early movers advantage in their business of Ethanol extraction technoogy. If they succede to do so, definitely they would have advantage against many more such companies who are working on the same.
At the same time, I would want to draw your attention towards technology itself. The drive behind Ethanol and bio diesels has been at it's peak in past few years due to higher oil prices and finite oil reserves. This Oil movement lead the research towards alternative energy sources. I am not sure if you had read a news flashed 3 days back in all newspapers about a car being launched by General motors which gives you mileage of almost 100 KMS/LTR. It is an hybrid car which uses electricity and petrol as combination of fuels to run. Solar energy and Hydrogen cell powered energy sources are under research. One would argue that these technologies are very expensive and so not feasible for mass production. But the answer lies in the statement itself. The day it comes under mass production, prices would automatically get reduced drastically. Remember the example of CD/DVD's? I remember a dvd used to cost Rs. 500 few (5) years back and it comes at Rs. 25 only now. LCD TV's used to cost above a lakh around 3 years back, now it is almost at 15-20K levels.
The car mentioned above costs around US $40000, so approx. 20 Lakhs. Such options could cost like a normal car in next few years. So would Ethanol and bio diesel be as precious and lucrative businesses at that time as they are now? They don't seem to be. And what if tomorrow a scientist succedes to run a car which is Hydrogen fuelled? Meaning it would not need petrol/diesel at all. European countries and USA are working day and night to invent such options that would reduce their fuel dependancy on Arabic countries. And it is not only about cars. If car can run; any such engine can run on alternative fuels. In such scenarios, Ethanol and Bio diesel would remain just an additive in conventional fossil fuels and nothing more than that.
Coming back to our question of "To buy stocks or not?" ;)
There is no harm in being part of a business which have potential to grow at good rate for some time ahead till it gets competition discussed above. But I would recommend to have little portion only of your investment portfolio occupied by this stock and not to bet entirely on it. Don't forget Golden rule of investment: Never put all your eggs in one basket!
This is entirely my opinion and would love to hear your take on this.
Public Sector Oil Marketing Companies - Sector Analysis
INVESTORS would have by now lost faith in Indias three public sector, Fortune 500 companies Indian Oil, BPCL and HPCL due to their topsy turvy performance last year. Last year proved very tough for these public sector Navaratnas due to huge underrecoveries.
However, the industry seems to have shown signs of revival with the companies reporting first signs of profitability in the June 09 quarter, which is likely to continue.
Steady but slow:
Despite a total lack of control over their own profitability, the stocks of these companies did not fall with the overall market in the last August 08 to February 09 period. The share prices of these three biggies found strong support around their book value. In the last quarter, however, the performance of these companies has been somewhat subdued despite the market revival. Since the start of April 2009, the shares of Indian Oil, BPCL and HPCL have gone up by around 37%, compared to over 60% gains in the benchmark Sensex to 15,160 on August 7, 09.
Wiping the slate clean:
The June 2009 quarter was a turnaround for the oil marketing companies (OMCs), as they posted healthy profits and cash flows compared to losses earlier. Their refining operations were under pressure due to the global economic turmoil, however, the sharp reduction in marketing losses helped them. The crude oil prices ruled at $60 per barrel during the quarter nearly half of the year ago period which helped these players to cut down their underrecoveries on marketing operations to negligible levels. As a result, there was no need for any oil bonds and very low upstream support.
Two other changes provided great support to the financials of these companies. Strengthening of rupee meant that the companies recorded forex gains during the quarter, as against heavy forex losses in the corresponding quarter of previous year. At the same time, their interest burden receded considerably thanks to lower interest rates and also reduced debt burden. The interest cost of these OMCs had jumped nearly threefold in FY 09 to Rs 8200 crore twice that of their annual aggregate profit.
Indian Oils quarterly numbers were also boosted by the merger of Bongaigaon Refinery with effect from 25th March 2008. Hence its financials were included in June 09 numbers, but not in the June 08 figures. Indian Oil also benefited from the improving performance of its petrochemical operations , the profits of which segment tripled during the quarter.
Future expectations:
Better future seems to await these three oil majors, particularly in the light of the recent Budget announcement about setting up of an expert group to decide a viable and sustainable petroleum pricing system.
The recent increase in prices of auto fuels starting July 2009 has reduced the under-recoveries of these OMCs on petrol and diesel to a level below Rs 2 per litre. These transport fuels represent over half of Indias total consumption of petroleum products, while the other two subsidized products kerosene and LPG represent just 15% portion. As a result, the increase in auto fuel prices will help these companies report profits in the coming quarters.
At the same time, these companies are investing in improving and expanding their refinery operations. The 6 million tonne Bina refinery of BPCL is expected to start operations by the end of 2009, while HPCLs 9 million tonne Bhatinda refinery will be ready by February 2011. Indian Oil is also in the process of expanding its Panipat refinery and start polymer production.
Valuations:
Thanks to the profits in the June 2009 quarter as against losses in the corresponding quarter of last year, the valuation of oil marketing companies has become attractive. Indian Oil is currently trading at a price-to-earnings multiple of 10.9, BPCL at 7.8 and HPCL at 5.9 We expect these companies to remain profitable in the next two quarters, wiping out over Rs 9500 crore of losses incurred in the same period of the last year. This will boost the per share earnings of these companies giving a booster to their performance on the bourses.
Risk Factors:
The main risk lies in crude oil prices zooming up in a short span, without corresponding increase in the retail prices of the petroleum products. However, considering the weakness in demand and heavy potential supply that could enter the market at a short notice, we rate this risk as low in the coming quarters.
Source: EconomicTimes
However, the industry seems to have shown signs of revival with the companies reporting first signs of profitability in the June 09 quarter, which is likely to continue.
Steady but slow:
Despite a total lack of control over their own profitability, the stocks of these companies did not fall with the overall market in the last August 08 to February 09 period. The share prices of these three biggies found strong support around their book value. In the last quarter, however, the performance of these companies has been somewhat subdued despite the market revival. Since the start of April 2009, the shares of Indian Oil, BPCL and HPCL have gone up by around 37%, compared to over 60% gains in the benchmark Sensex to 15,160 on August 7, 09.
Wiping the slate clean:
The June 2009 quarter was a turnaround for the oil marketing companies (OMCs), as they posted healthy profits and cash flows compared to losses earlier. Their refining operations were under pressure due to the global economic turmoil, however, the sharp reduction in marketing losses helped them. The crude oil prices ruled at $60 per barrel during the quarter nearly half of the year ago period which helped these players to cut down their underrecoveries on marketing operations to negligible levels. As a result, there was no need for any oil bonds and very low upstream support.
Two other changes provided great support to the financials of these companies. Strengthening of rupee meant that the companies recorded forex gains during the quarter, as against heavy forex losses in the corresponding quarter of previous year. At the same time, their interest burden receded considerably thanks to lower interest rates and also reduced debt burden. The interest cost of these OMCs had jumped nearly threefold in FY 09 to Rs 8200 crore twice that of their annual aggregate profit.
Indian Oils quarterly numbers were also boosted by the merger of Bongaigaon Refinery with effect from 25th March 2008. Hence its financials were included in June 09 numbers, but not in the June 08 figures. Indian Oil also benefited from the improving performance of its petrochemical operations , the profits of which segment tripled during the quarter.
Future expectations:
Better future seems to await these three oil majors, particularly in the light of the recent Budget announcement about setting up of an expert group to decide a viable and sustainable petroleum pricing system.
The recent increase in prices of auto fuels starting July 2009 has reduced the under-recoveries of these OMCs on petrol and diesel to a level below Rs 2 per litre. These transport fuels represent over half of Indias total consumption of petroleum products, while the other two subsidized products kerosene and LPG represent just 15% portion. As a result, the increase in auto fuel prices will help these companies report profits in the coming quarters.
At the same time, these companies are investing in improving and expanding their refinery operations. The 6 million tonne Bina refinery of BPCL is expected to start operations by the end of 2009, while HPCLs 9 million tonne Bhatinda refinery will be ready by February 2011. Indian Oil is also in the process of expanding its Panipat refinery and start polymer production.
Valuations:
Thanks to the profits in the June 2009 quarter as against losses in the corresponding quarter of last year, the valuation of oil marketing companies has become attractive. Indian Oil is currently trading at a price-to-earnings multiple of 10.9, BPCL at 7.8 and HPCL at 5.9 We expect these companies to remain profitable in the next two quarters, wiping out over Rs 9500 crore of losses incurred in the same period of the last year. This will boost the per share earnings of these companies giving a booster to their performance on the bourses.
Risk Factors:
The main risk lies in crude oil prices zooming up in a short span, without corresponding increase in the retail prices of the petroleum products. However, considering the weakness in demand and heavy potential supply that could enter the market at a short notice, we rate this risk as low in the coming quarters.
Source: EconomicTimes
Gujarat NRE Coke Ltd (GNCL) - Buy Stocks Report On Valuations
Gujarat NRE Coke Ltd (GNCL) is the largest independent producer of metallurgical coke in India, having a coke manufacturing capacity of 1 Mtpa, which is getting increased to 1.25 Mtpa by March 09. Here is a buy stocks report on current and future valuations of the company.
Investment Rationale
It is also the only Indian company to have acquired captive coking coal mines outside India. GNCL has already started the mining in Australian mines and is expected to produce around 1 million MT of coking coal for FY09E and slowly scale up to over 7 million MT by 2013E.
The domestic demand for coke has to be fulfilled through imports from Australia, Canada, USA, or China as India does not have reserves to that extent. And, taking into consideration various other issues, Australia seems to be the most suitable location to import coking coal.
IMPORTANT STATS
52 Week H/L: 175/17
Shareholding Pattern
Promoters: 45%
DII’s: 5%
FII’s: 20%
Others: 30%
Market Cap: 1,149.12
EPS (TTM): 5.82
P/E: 4.18
P/C: 3.86
Book Value: 23.48
Price/Book: 1.04
Div(%): 25.00
Div Yield(%): 10.27
Market Lot: 1.00
Face Value: 10.00
Industry P/E: 9.83
After its Australian mines become fully operational, the company would be using nearly 80‐90 percent of its coal requirement from the mines for coke business and the remaining would be sold in the open market. This will improve the margins of the company as the Australian coking coal business has better margins than the Indian coke business.
We have valued Gujarat NRE Coke Ltd on the EV/EBITDA based methodology. The stock is presently trading at an EV of 2.4 (x) FY10E EBITDA. We have given a target EV of 3.5 (x) FY10E EBITDA and recommend buying stocks of Gujarat NRE Coke Ltd with a target price of Rs 37.
The stock price has fallen due to concerns regarding the falling coking coal and coke prices, all the negatives have been discounted in the stock price and the stock looks very attractive at current levels. A better than expected rise in coking coal and coke prices may lead the stock to even higher levels. The company’s captive coking coal mines and captive power plant will help it in sustaining the slowdown in the economy.
Download stock report PDF
Investment Rationale
It is also the only Indian company to have acquired captive coking coal mines outside India. GNCL has already started the mining in Australian mines and is expected to produce around 1 million MT of coking coal for FY09E and slowly scale up to over 7 million MT by 2013E.
The domestic demand for coke has to be fulfilled through imports from Australia, Canada, USA, or China as India does not have reserves to that extent. And, taking into consideration various other issues, Australia seems to be the most suitable location to import coking coal.
IMPORTANT STATS
52 Week H/L: 175/17
Shareholding Pattern
Promoters: 45%
DII’s: 5%
FII’s: 20%
Others: 30%
Market Cap: 1,149.12
EPS (TTM): 5.82
P/E: 4.18
P/C: 3.86
Book Value: 23.48
Price/Book: 1.04
Div(%): 25.00
Div Yield(%): 10.27
Market Lot: 1.00
Face Value: 10.00
Industry P/E: 9.83
After its Australian mines become fully operational, the company would be using nearly 80‐90 percent of its coal requirement from the mines for coke business and the remaining would be sold in the open market. This will improve the margins of the company as the Australian coking coal business has better margins than the Indian coke business.
We have valued Gujarat NRE Coke Ltd on the EV/EBITDA based methodology. The stock is presently trading at an EV of 2.4 (x) FY10E EBITDA. We have given a target EV of 3.5 (x) FY10E EBITDA and recommend buying stocks of Gujarat NRE Coke Ltd with a target price of Rs 37.
The stock price has fallen due to concerns regarding the falling coking coal and coke prices, all the negatives have been discounted in the stock price and the stock looks very attractive at current levels. A better than expected rise in coking coal and coke prices may lead the stock to even higher levels. The company’s captive coking coal mines and captive power plant will help it in sustaining the slowdown in the economy.
Download stock report PDF
Cairn India - Buy Stock Report - Value Midcap From Petroleum Sector
Cairn’s production from its Rajasthan field is set to begin shortly after a long investment phase and this marks a good time for the long-term investors to buy stocks of this midcap stock as an good intrinsic value investment.
CAIRN India (CIL) is set to emerge as one of India’s leading petroleum producer - and possibly the largest onshore producer - once its oilfields in Rajasthan reach peak production in 2 years. The company is about to commence production at its largest Mangala field and scale it up gradually to 80,000 barrels per day by the end of this year. Its growth prospects look attractive for long-term investors.
Business:
Cairn India, which is a 64.7% subsidiary of the UK-based Cairn Energy, holds petroleum exploration and production (E&P) rights in 14 blocks across India. It is an operator in two blocks - with a 22.5% stake in Ravva field off the eastern coast and 40% in Cambay basin fields - which together produced around 67,600 barrels of oil equivalent per day (boepd) in 2008. Out of this, Cairn’s share worked out to around 17,600 boepd.
CIL made an important hydrocarbon discovery in Rajasthan in 2004 and, after further discoveries, has established inplace reserves of 3.6 billion barrels of oil equivalent (boe). It holds 70% operator’s stake in this field and the remaining 30% is held by ONGC. The company recently acquired exploration rights in one block in Sri Lanka.
The crude oil produced from the Rajasthan fields has high wax content and therefore needs to be heated while being transported through a pipeline. The land-locked nature of the oil field also makes marketing of this crude difficult. The company has overcome these difficulties by changing the point of delivery to the coast of Gujarat from Barmer and the cost of constructing the pipeline - nearly $800 million - was included in the field development programme expenses.
Growth Drivers:
The company intends to start the production of 30,000 bpd by October this year and raise it to 80,000 bpd by January 2010. By July 2010, the Mangala field will operate at full capacity of 1, 25,000 bpd. The Bhagyam and Aishwarya fields will come on stream in 2011, thereby raising the peak rates to 1,75,000 bpd.
The smaller fields in the Rajasthan - Rageshwari and Saraswati - can add another 10,000-15,000 bpd. CIL plans to drill nearly 300 more wells in these blocks and use enhanced oil recovery (EOR) measures from the early phase to improve the production levels in the future.
The company’s exploration efforts elsewhere in the country are also on schedule and hold a possibility for new discoveries.
Financials:
The consolidated profit of CIL stood at Rs 785 crore for the year ended December 2008, with Rs 446 crore coming from other income. The company is carrying a cash balance of Rs 2,943 crore, over and above its debt, for funding its capex plans. It generates healthy cash-flows from operations and had raised Rs 2,500 crore through preferential equity placement in April 2008 to build this war chest.
Valuation:
At the prevailing market price of Rs 188, the company is trading at 45.6 times 12 months profits. However, its current valuations are more dependent on expected petroleum output rather than existing operations.
If the company meets its production targets, it should report net profit of Rs 849 crore in FY2010 and Rs 5,144 crore in FY2011. The existing market price is 41.7 times the profits of 2009 but merely 6.9 times the expected 2011 profits. The company’s profitability would go up further after it commences peak production of 1,75,000 bpd in 2011. Buying stocks of Cairn is advisable at this moment due to clear visibility of profits growing for the company in next couple of years.
Shareholding pattern
Total shareholding of Promoter and Promoter Group: 64.68%
Foreign/Institutional Investors: 14.50%
Public shareholding: 20.82%
Risk Factors:
The price movement of crude oil is the key risk for Cairn. The oil prices, which crashed to $35 in December 2008 from $145 in July 2008, have recovered over the past couple of months. But if they remain soft for a protracted period of time, Cairn’s realisations and profitability would take a hit. A substantial appreciation of the rupee against the dollar will also impact the company adversely.
CAIRN India (CIL) is set to emerge as one of India’s leading petroleum producer - and possibly the largest onshore producer - once its oilfields in Rajasthan reach peak production in 2 years. The company is about to commence production at its largest Mangala field and scale it up gradually to 80,000 barrels per day by the end of this year. Its growth prospects look attractive for long-term investors.
Business:Cairn India, which is a 64.7% subsidiary of the UK-based Cairn Energy, holds petroleum exploration and production (E&P) rights in 14 blocks across India. It is an operator in two blocks - with a 22.5% stake in Ravva field off the eastern coast and 40% in Cambay basin fields - which together produced around 67,600 barrels of oil equivalent per day (boepd) in 2008. Out of this, Cairn’s share worked out to around 17,600 boepd.
CIL made an important hydrocarbon discovery in Rajasthan in 2004 and, after further discoveries, has established inplace reserves of 3.6 billion barrels of oil equivalent (boe). It holds 70% operator’s stake in this field and the remaining 30% is held by ONGC. The company recently acquired exploration rights in one block in Sri Lanka.
The crude oil produced from the Rajasthan fields has high wax content and therefore needs to be heated while being transported through a pipeline. The land-locked nature of the oil field also makes marketing of this crude difficult. The company has overcome these difficulties by changing the point of delivery to the coast of Gujarat from Barmer and the cost of constructing the pipeline - nearly $800 million - was included in the field development programme expenses.
Growth Drivers:
The company intends to start the production of 30,000 bpd by October this year and raise it to 80,000 bpd by January 2010. By July 2010, the Mangala field will operate at full capacity of 1, 25,000 bpd. The Bhagyam and Aishwarya fields will come on stream in 2011, thereby raising the peak rates to 1,75,000 bpd.
The smaller fields in the Rajasthan - Rageshwari and Saraswati - can add another 10,000-15,000 bpd. CIL plans to drill nearly 300 more wells in these blocks and use enhanced oil recovery (EOR) measures from the early phase to improve the production levels in the future.
The company’s exploration efforts elsewhere in the country are also on schedule and hold a possibility for new discoveries.
Financials:
The consolidated profit of CIL stood at Rs 785 crore for the year ended December 2008, with Rs 446 crore coming from other income. The company is carrying a cash balance of Rs 2,943 crore, over and above its debt, for funding its capex plans. It generates healthy cash-flows from operations and had raised Rs 2,500 crore through preferential equity placement in April 2008 to build this war chest.
Valuation: At the prevailing market price of Rs 188, the company is trading at 45.6 times 12 months profits. However, its current valuations are more dependent on expected petroleum output rather than existing operations.
If the company meets its production targets, it should report net profit of Rs 849 crore in FY2010 and Rs 5,144 crore in FY2011. The existing market price is 41.7 times the profits of 2009 but merely 6.9 times the expected 2011 profits. The company’s profitability would go up further after it commences peak production of 1,75,000 bpd in 2011. Buying stocks of Cairn is advisable at this moment due to clear visibility of profits growing for the company in next couple of years.
Shareholding pattern
Total shareholding of Promoter and Promoter Group: 64.68%
Foreign/Institutional Investors: 14.50%
Public shareholding: 20.82%
Risk Factors:
The price movement of crude oil is the key risk for Cairn. The oil prices, which crashed to $35 in December 2008 from $145 in July 2008, have recovered over the past couple of months. But if they remain soft for a protracted period of time, Cairn’s realisations and profitability would take a hit. A substantial appreciation of the rupee against the dollar will also impact the company adversely.
RIL - RPL Merger - What Should Investors Do Now?
Stock trading research advisor S.P. Tulsian's views on Future of Reliance Industries and Reliance Petroleum shareholders. Guidance on what a common investor should do now? Should he be buying stocks of RIL / RPL? Should he trade stock of RIL / RPL for short term gains?
One can see the price correcting to about Rs 70 because ultimately everything depends on the conversion ratio, which is likely to hover between 18:1 and 24:1. It all depends on what stand Reliance Industries would take for extinguishment of their stake of 70% that they hold in Reliance Petroleum. If they go for extinguishment then it could be a better ratio of 18:1. If they go for non-extinguishment, then the ratio could be 24:1.”
Future of RPL shareholders
Tulsian gives an example of the state of RPL shareholders post merger:-
Book value of RIL shareholder as of March 31, 2009, which is likely to be the effective date of the merger, would be 700, while that of RPL would be Rs 30.
How he arrived at book value: Reliance Industries has been in existence for the last 30 years. So there has been an accretion in the value of the fixed assets of the company, while RPL being a new company, there has not been much accretion. The project cost of RPL of Rs 27,000 crore can be taken at about Rs 30,000-33,000 crore as of today.
Therefore, a shareholder of Reliance Industries will be shouting if the ratio is anywhere more than 24 to 1 because that is the ratio working out, based on the book value. If market value is the criteria for swap ratio, it works out to about 16-17.
Ratio would definitely be negative for RPL shareholders.
Future of RIL shareholders
Tulsian said that RPL itself is entitled under Section 10AA, therefore RPL’s profits would be exempted for the first five years being an EOU (Export Oriented Unit). “This merger is not being mooted or moved with a view to have any tax advantage because RPL as such is entitled, all its profits will be exempted for the first five years to the extent of 100% of Section 10AA being a 100% EOU.”
Benefits
Tulsian says, “RPL has an advantage of the higher Nelson Complexity also. They have Nelson Complexity of 14.7 against RIL which has 11.7, which will always be giving the merged entity an extra gross refining margin to the extent of USD 2 per barrel. So all these things definitely makes a synergy, may be in terms of increasing the capacity and saving slight payments and overhead cost.”
Tulsian is of the view that RIL-RPL merger can easily increase the debt equity ratio, by 10 bps on the merged entity but this will definitely be EPS accretive for the merged entity as well. He explains, "May be the retail investors will feel depressed or may be nervous that their price will get corrected closer to anywhere between Rs 65 to Rs 70.”
What should investors do?
Tulsian said the merger definitely strengthens the case for making investment in Reliance Industries. He advises investors to get out of RPL. “One can really play blind and without taking a know of the merger ratio, one can get out from RPL even if one gets the price of anywhere above Rs 70 and to move into Reliance Industries because before management does that conversion for investor, it is better to have that voluntary shifting from RPL to RIL on Monday itself.”
Source: moneycontrol.com
One can see the price correcting to about Rs 70 because ultimately everything depends on the conversion ratio, which is likely to hover between 18:1 and 24:1. It all depends on what stand Reliance Industries would take for extinguishment of their stake of 70% that they hold in Reliance Petroleum. If they go for extinguishment then it could be a better ratio of 18:1. If they go for non-extinguishment, then the ratio could be 24:1.”
Future of RPL shareholders
Tulsian gives an example of the state of RPL shareholders post merger:-
Book value of RIL shareholder as of March 31, 2009, which is likely to be the effective date of the merger, would be 700, while that of RPL would be Rs 30.
How he arrived at book value: Reliance Industries has been in existence for the last 30 years. So there has been an accretion in the value of the fixed assets of the company, while RPL being a new company, there has not been much accretion. The project cost of RPL of Rs 27,000 crore can be taken at about Rs 30,000-33,000 crore as of today.
Therefore, a shareholder of Reliance Industries will be shouting if the ratio is anywhere more than 24 to 1 because that is the ratio working out, based on the book value. If market value is the criteria for swap ratio, it works out to about 16-17.
Ratio would definitely be negative for RPL shareholders.
Future of RIL shareholders
Tulsian said that RPL itself is entitled under Section 10AA, therefore RPL’s profits would be exempted for the first five years being an EOU (Export Oriented Unit). “This merger is not being mooted or moved with a view to have any tax advantage because RPL as such is entitled, all its profits will be exempted for the first five years to the extent of 100% of Section 10AA being a 100% EOU.”
Benefits
Tulsian says, “RPL has an advantage of the higher Nelson Complexity also. They have Nelson Complexity of 14.7 against RIL which has 11.7, which will always be giving the merged entity an extra gross refining margin to the extent of USD 2 per barrel. So all these things definitely makes a synergy, may be in terms of increasing the capacity and saving slight payments and overhead cost.”
Tulsian is of the view that RIL-RPL merger can easily increase the debt equity ratio, by 10 bps on the merged entity but this will definitely be EPS accretive for the merged entity as well. He explains, "May be the retail investors will feel depressed or may be nervous that their price will get corrected closer to anywhere between Rs 65 to Rs 70.”
What should investors do?
Tulsian said the merger definitely strengthens the case for making investment in Reliance Industries. He advises investors to get out of RPL. “One can really play blind and without taking a know of the merger ratio, one can get out from RPL even if one gets the price of anywhere above Rs 70 and to move into Reliance Industries because before management does that conversion for investor, it is better to have that voluntary shifting from RPL to RIL on Monday itself.”
Source: moneycontrol.com
RIL and RPL Merger - Who Would be Benefitted?
The $34.5-billion Reliance Industries, India's largest private sector company, on Friday announced that it will consider a proposal next week to merge another group company into itself to bring in operational efficiency.The Reliance Industries Limited (RIL) board will meet on March 2 to consider merger with Reliance Petroleum Limited (RPL). The merger is effective retrospectively from April 1, 2009.
Reliance Petroleum has claimed an annual crude processing capacity of 580,000 barrels per day, making it the sixth largest refinery in the world. The parent is a Fortune Global 500 company and largest private sector entity in India.
RIL, will issue about 34-crore additional equity shares of market value of approximately Rs 11,000 crore. RIL sold 4% stake in RPL taking its stake down to 71%.
Value of RPL's assets has been put at Rs 21,000 crore by industry consultants and ChemSystems. ChemSystems is a firm providing support in the field of petroleum, chemical and petrochemical industries. The company offers data, analysis, forecasts, training and planning tools to improve understanding and planning in the areas of energy and chemicals.
CHECKOUT: RIL - RPL Merger - What Should Investors Do Now?
The merger would result in accretion of Rs 1,300 crore to RIL's net profit. Post-merger, the equity shareholding of the promoters in RIL would come down from the current 44% to 34%.
The merger would increase RIL's operational synergies and its cost efficiencies would optimise fiscal incentives, enhance financial strength and flexibility. It would also eliminate transfer pricing issues.
I strongly believe this would benefit RIL shareholders in long run considering the fact that now they also have indirect share of Reliance Petroleum and it's profits.
More updates to come soon....
RIL's shareholding pattern:
Promoters: 49%
MF/UTI: 2.53%
FII: 15.52%
RPL's shareholding pattern:
Promoters: 75.28%
Reference:
http://www.moneycontrol.com/
http://www.economictimes.com/
Reliance Industries (RIL) - Buy Stock for safe investment
Reliance Industries (RIL), India’s largest private sector company, is an integrated player in the oil and gas sector, with interests in Exploration & Production (E&P), refining, marketing and petrochemicals.
In the recent past, RIL’s gross refining margin (GRM), although superior to Singapore benchmark GRM, have been under pressure due to the global slowdown.
While the benchmark GRM is expected to see some recovery, the start of refining operations of its 70.4 per cent subsidiary, Reliance Petroleum (RPET) will help offset the decline in margins. RPET has a capacity to refine 0.58 million barrels of oil per day (BOPD), and would take RIL’s consolidated capacity to 1.24 million BOPD in the refining business, which accounted for 56 per cent of profits.
Checkout: 10 Biggest Wealth Creators (Best stocks for safe Investment)
The start of gas production from RIL’s KG-D6 block, which is estimated to reach peak production levels of 80 mmscmd in the next 6-8 quarters, will also significantly contribute to the consolidated financials of RIL. Although, EBIT contribution from E&P is at around 12 per cent as of Q2 FY09, analysts expect this figure would reach up to 50-60 per cent by FY11E. In the near-term though, there are issues like those pertaining to the pricing of gas, which would weigh on stock valuations, until they get resolved.
The fortunes of the petrochemical business (33 per cent of profits) have been subdued in the last few quarters. Here, analysts expect the polymer cycle to bottom out by June 2009. Overall, with expanded capacities and production from new oil and gas blocks, expect RIL’s profits to rise in the next two years. The stock can deliver 20-22 per cent in one year.
Go Back To: Best Stocks For 2009 - Stocks To Buy Now
In the recent past, RIL’s gross refining margin (GRM), although superior to Singapore benchmark GRM, have been under pressure due to the global slowdown.
While the benchmark GRM is expected to see some recovery, the start of refining operations of its 70.4 per cent subsidiary, Reliance Petroleum (RPET) will help offset the decline in margins. RPET has a capacity to refine 0.58 million barrels of oil per day (BOPD), and would take RIL’s consolidated capacity to 1.24 million BOPD in the refining business, which accounted for 56 per cent of profits.
Checkout: 10 Biggest Wealth Creators (Best stocks for safe Investment)
The start of gas production from RIL’s KG-D6 block, which is estimated to reach peak production levels of 80 mmscmd in the next 6-8 quarters, will also significantly contribute to the consolidated financials of RIL. Although, EBIT contribution from E&P is at around 12 per cent as of Q2 FY09, analysts expect this figure would reach up to 50-60 per cent by FY11E. In the near-term though, there are issues like those pertaining to the pricing of gas, which would weigh on stock valuations, until they get resolved.
The fortunes of the petrochemical business (33 per cent of profits) have been subdued in the last few quarters. Here, analysts expect the polymer cycle to bottom out by June 2009. Overall, with expanded capacities and production from new oil and gas blocks, expect RIL’s profits to rise in the next two years. The stock can deliver 20-22 per cent in one year.
Go Back To: Best Stocks For 2009 - Stocks To Buy Now
CAIRN INDIA - Stock To buy
Cairn India’s new discovery of oil and gas in its Rajasthan block (RJ-ON-90/1) is a positive trigger for the stock.
Reco price: Rs 160
Current market price: Rs 159.75
Target Price: Rs 240
Upside: 50.2%
Brokerage: Kotak Securities
Cairn India’s new discovery of oil and gas in its Rajasthan block (RJ-ON-90/1) is a positive trigger for the stock. Although, the management has not disclosed details of the reserves, this discovery increases the likelihood of upward revision to Cairn’s reserve estimates. The brokerage believes that the market is penalising the stock, due to the sharp correction in crude oil prices. The stock is currently discounting low crude oil prices in perpetuity and no accretion to reserves.
Checkout: Cairn India - Buy Report From Icici Securities
The reverse valuation exercise of the brokerage suggests that Cairn’s current stock price of Rs 160 is discounting $52 per barrel (dated Brent basis) from CY09E (start of production from Rajasthan block) in perpetuity. However, it is discounting $30 per barrel from CY13E in perpetuity versus the brokerage’s long-term normalised crude price assumption of $75 per barrel (from CY13E) if CY09-12E assumptions turn out to be correct. The brokerage has modelled $70 per barrel for CY09E, $73 per barrel for CY10 and $75 per barrel for CY11-12E and $75 per barrel from CY13E in its base earnings model and long-term rupee-dollar exchange rate at 45. It advises investors to make use of this opportunity to buy the stock given favourable risk-reward balance at current levels. At Rs 160, the stock is trading at a P/E of 12.8 times and EV/EBITDA of 8.4 times its CY09E earnings. Maintain buy.
Reco price: Rs 160
Current market price: Rs 159.75
Target Price: Rs 240
Upside: 50.2%
Brokerage: Kotak Securities
Cairn India’s new discovery of oil and gas in its Rajasthan block (RJ-ON-90/1) is a positive trigger for the stock. Although, the management has not disclosed details of the reserves, this discovery increases the likelihood of upward revision to Cairn’s reserve estimates. The brokerage believes that the market is penalising the stock, due to the sharp correction in crude oil prices. The stock is currently discounting low crude oil prices in perpetuity and no accretion to reserves.
Checkout: Cairn India - Buy Report From Icici Securities
The reverse valuation exercise of the brokerage suggests that Cairn’s current stock price of Rs 160 is discounting $52 per barrel (dated Brent basis) from CY09E (start of production from Rajasthan block) in perpetuity. However, it is discounting $30 per barrel from CY13E in perpetuity versus the brokerage’s long-term normalised crude price assumption of $75 per barrel (from CY13E) if CY09-12E assumptions turn out to be correct. The brokerage has modelled $70 per barrel for CY09E, $73 per barrel for CY10 and $75 per barrel for CY11-12E and $75 per barrel from CY13E in its base earnings model and long-term rupee-dollar exchange rate at 45. It advises investors to make use of this opportunity to buy the stock given favourable risk-reward balance at current levels. At Rs 160, the stock is trading at a P/E of 12.8 times and EV/EBITDA of 8.4 times its CY09E earnings. Maintain buy.
Reliance Industries - Merill Lynch maintains 'buy' rating
Report and target from Merill Lynch on Reliance Industries (RIL) based on recent happenings in company financials, industry & economy.CMP: Rs 1,120
Target price: Rs 1,555
Merill Lynch has cut its price objective on Reliance Industries (RIL) by 15% from Rs 1,825 to Rs 1,555 based on sum of the parts valuation. However, it continues to retain its ‘buy’ on the stock. The brokerage says that the cut is due to cut in the value of its refining business and value of its investment in RPL.
The former has been cut by 56% to Rs 168 per share and the latter by 39% to Rs 137 per share. “We have steeply cut Singapore complex refining margins forecast for financial year (FY) 2010 and 2011 (expected). Consequently, refining margins of Reliance Industries (RIL) and refining subsidiary Reliance Petroleum (RPL), too, have been steeply cut,” the report said.
The cut is relatively modest assuming a weaker rupee, it adds. RIL’s presence in E&P and petrochemicals also helped dilute impact of refining margin cut on RIL. The report says that the key risks include failure in the retail business, and changes in government policies like withdrawal of the tax holiday which may have a direct impact on the business, cash flow and profit, among other things.
Cairn India - Buy Report From Icici Securities
ICICI Securities have analysed the stock from safe & Value investment perspectives and evaluated the value to come up with their investment advice.
Cairn
CMP: Rs 134.40
ICICI Securities has rated Cairn a ‘buy’ while reducing its fair value estimates by 6% to Rs 245 per share.
“We maintain Cairn as our top pick in the sector on the back of impending commencement of production from its oil blocks at Rajasthan and significant free cashflow generation going forward. At present, Cairn’s stock price implies long-term crude price of $43/bl vis-à-vis $59/bl for ONGC,” the outfit said in a report.
Explaining the logic behind trimming Cairn fair value estimates, ICICI Securities said: “In line with our revisiting crude price and exchange rate estimates, we are revising our long-term INR-US$ exchange rate estimates to 40 (from 39) and increasing the cost of equity for Cairn to 15.2% from 14%.”
One of the old research reports on Cairn: Cairn Energy - Buy recommendation research report
Read More:
Balrampur Chini - BUY Report from Centrum Brokerag...
The 10 Most Valuable Companies in BT 500
Top 10 Net Profit Earners in BT 500
Top Absolute Loss Making Companies
Cairn
CMP: Rs 134.40
ICICI Securities has rated Cairn a ‘buy’ while reducing its fair value estimates by 6% to Rs 245 per share.
“We maintain Cairn as our top pick in the sector on the back of impending commencement of production from its oil blocks at Rajasthan and significant free cashflow generation going forward. At present, Cairn’s stock price implies long-term crude price of $43/bl vis-à-vis $59/bl for ONGC,” the outfit said in a report.
Explaining the logic behind trimming Cairn fair value estimates, ICICI Securities said: “In line with our revisiting crude price and exchange rate estimates, we are revising our long-term INR-US$ exchange rate estimates to 40 (from 39) and increasing the cost of equity for Cairn to 15.2% from 14%.”
One of the old research reports on Cairn: Cairn Energy - Buy recommendation research report
Read More:
Balrampur Chini - BUY Report from Centrum Brokerag...
The 10 Most Valuable Companies in BT 500
Top 10 Net Profit Earners in BT 500
Top Absolute Loss Making Companies
Reliance Industries (RIL) - BUY Rating Report from Merrill Lynch
MERRILL Lynch retains ‘buy’ rating on Reliance Industries.
Reliance Industries
RESEARCH: MERRILL LYNCH
RATING: BUY
CMP: Rs 1,127
MERRILL Lynch has retained it ‘buy’ rating on Reliance Industries (RIL). Its refining margin has consistently been higher than the benchmark Singapore complex refining margin. Analyses suggests RIL’s superior refining margin is due to its ability to refine heavier crude than Dubai. Compared to the last refining downturn, RIL is set to benefit more in FY10-FY 11E from its ability to refine heavier crude. Reliance Petroleum’s (RPL) refinery, which is expected to start operations soon, can process even heavier crude than RIL and has a superior product slate.
The average discount of Arab heavy to Dubai since FY01 is $2.4/bbl. The discount has sustained at over $5/bbl even in the past six weeks, despite the slump in oil prices. Merrill Lynch estimates RPL’s refining margin at $12.9/bbl if it were to operate in Q3 FY09, vis-à-vis Singapore margin of $7.3/bbl. It will produce more gasoline than RIL. Gasoline cracks have always been at a premium to naphtha and LPG cracks. Merrill Lynch feels that a weakening in diesel and gasoline cracks is the main risk to RPL attaining such high margins when it begins operations.
Reliance Industries
RESEARCH: MERRILL LYNCH
RATING: BUY
CMP: Rs 1,127
MERRILL Lynch has retained it ‘buy’ rating on Reliance Industries (RIL). Its refining margin has consistently been higher than the benchmark Singapore complex refining margin. Analyses suggests RIL’s superior refining margin is due to its ability to refine heavier crude than Dubai. Compared to the last refining downturn, RIL is set to benefit more in FY10-FY 11E from its ability to refine heavier crude. Reliance Petroleum’s (RPL) refinery, which is expected to start operations soon, can process even heavier crude than RIL and has a superior product slate.
The average discount of Arab heavy to Dubai since FY01 is $2.4/bbl. The discount has sustained at over $5/bbl even in the past six weeks, despite the slump in oil prices. Merrill Lynch estimates RPL’s refining margin at $12.9/bbl if it were to operate in Q3 FY09, vis-à-vis Singapore margin of $7.3/bbl. It will produce more gasoline than RIL. Gasoline cracks have always been at a premium to naphtha and LPG cracks. Merrill Lynch feels that a weakening in diesel and gasoline cracks is the main risk to RPL attaining such high margins when it begins operations.
Reliance Industries Limited (RIL) - Results Analysis - Buy
BUY
Price Rs : 1,215
Target Price : Rs1,880
Investment Period : 12 months
Sector : Oil & Gas
Market Cap (Rs cr) : 1,91,255
Beta : 1.1
52 WK High / Low : 3252 / 1197
Avg Daily Volume : 1121594
Face Value (Rs) : 10
Refining boosts Revenues:
Reliance Industries (RIL) delivered good set of numbers for 2QFY2009, which exceeded our expectations. RIL Net Sales clocked yoy growth of 39.8%, while Net Profit increased 7.4% yoy. RIL reported Net Sales of Rs44,787cr (Rs32,043cr) primarily on the back of better realisation registered during the quarter. Realisation improved due to higher crude oil prices. Segment-wise, the Refining and Petrochemical segments’ Gross Sales yoy grew 54.4% and 20% to Rs36,393cr and Rs15,549cr respectively, during the quarter. Crude processing during the quarter was 8.21mn tonnes (8.09mn tonnes), which was marginally higher by 1.48% yoy.
Refining Margins holds on; Petrochemical Margins take a dip:
During the quarter, RIL reported stronger-than-expected GRMs of US $13.4/bbl (US $13.6/bbl). Benchmark complex Singapore Margins, during the quarter, stood at US $5.8/bbl. Thus, RIL managed to earn a spread of US $7.6/bbl, in line with its previous performance. However, Petrochemical Margins declined by 340bp yoy largely due to a significant increase in naphtha prices over the period. However on sequential basis, petrochemical Margins
increased by 160bp qoq resulting in better-than-anticipated Profitability for the segment. Overall Operating Margins were under pressure declining by 359bp yoy to 14.5% during the quarter due to higher raw material prices.
Refining and Marketing (R&M):
The R&M segment continued its good performance and was the key driver of the company’s operating performance. R&M Revenues yoy jumped significantly by 54.4% to Rs36,393cr (Rs23,575cr) primarily on the back of higher crude oil prices. Crude processing during the quarter stood at 8.21mn tonnes (8.09mn tonnes), which was marginally higher by 1.48% yoy. EBIT Margins were under pressure both on yoy and sequential basis, declining by 220bp and 170bp, respectively. RIL reported GRM of US $13.4 per barrel compared to benchmark Singapore Margins of US $5.8 per barrel, resulting in premium of US $7.6 per barrel. In spite of the significant reduction in crude oil prices from its peak during the quarter, RIL did not clock inventory losses on account of superior inventory management.
Petrochemicals:
Petrochemical segment revenues increased 20% yoy to Rs15,549cr (Rs12,961cr) primarily due to the increase in raw material prices during the quarter. Naphtha prices, during the quarter jumped significantly, which is the base raw material for all petrochemical products. Thus, higher naphtha prices impacted RIL’s Petrochemical EBIT Margins, which declined by 340bp to 12.2% (15.6%) though sequentially it moved up by 160bp. Production of petrochemical products increased from 9.8mn tonnes to 10.0mn tonnes, registering a yoy increase of 2%.
Exploration and Production (E&P):
RIL made two gas discoveries in KG basin during the quarter and commenced production of crude oil from KG D6 in mid September. Initial production was 5,000 barrels per day, which has now increased to 10,000 barrels per day. Development work of the gas from D1 and D3 fields (from KG-D6 block) is underway and production is likely to commence from 4QFY2009.
Increased capex towards E&P: During 3QFY2008, RIL incurred capex of Rs11,401cr, majority of which is spent on the Oil and Gas business.
RPL Refinery – 97% work completed: RPL’s upcoming refinery has achieved 97% completion, although the deadline is set for December 2008. The refinery is progressing rapidly and in expected to get operational ahead of schedule.
Reliance Retail: Reliance Retail launched two new formats during the quarter: Reliance Living Homeware and Reliance Home Kitchens. RIL has entered into exclusive pan-India franchise arrangements with ‘Hamleys’ toy maker.
Outlook and Valuation
RIL 2QFY2009 results exceeded expectations. Though the company managed better-than-expected numbers in both the Petrochemical and Refining segments, going ahead, anticipated slowdown in the global economy is expected to drag down Margins of both the segments. However, given the superior refining slate and relative strength in middle distillate cracks, we expect premium over Singapore margins to continue going forward. Similarly, due to integrated nature of operations, RIL is likely to be lesser affected due to anticipated slowdown in the Petrochemical segment.
Crude oil production has already commenced in the KG basin and the gas is likely to start flowing from 4QFY2009. Given the demand-supply equation of gas in the country along with low domestic gas prices, we believe there will be no impact of lower crude oil prices on the company’s gas business. In fact, the company’s gas business reduces its overall risks.
In the E&P segment, RIL expanded its international E&P footprint to Kurdistan, Oman, Yemen, Columbia, East Timor and Australia in addition to its rich domestic acreage. We believe that the upcoming E&P and Retail business will further enhance the company’s value.
We are valuing RIL on P/E basis shifting from SOTP-based valuation. We believe P/E-based valuations tend to capture fair value amidst the scenario of economic downturn. Based on our FY2010E EPS of Rs170.9 per share and Target P/E multiple of 11x, we ascribe fair value of Rs1,880 to the RIL stock. We maintain a Buy on RIL.
Subscribe to:
Posts (Atom)