Oil India (OILI.BO)
Alert: 2Q: Some One-Offs, but Strong Operationally
Operationally strong 2Q — OIL’s 2QFY12 PAT came in at Rs11.4bn (+24% yoy,
+34% qoq), boosted by a combination of production growth and subsidy burden
remaining at one third. Reported PAT was, however, below estimates owing to one-off
provisions of Rs2.86bn on employee costs and higher-than-expected DD&A costs,
which also included one-offs (provision for minimum work programme) of cRs3.6bn.
No subsidy surprises; net realizations at US$86 — OIL’s 2Q net realizations came
in at US$86/bbl, and were driven by strong crude prices, lower subsidy burden
following the June price hikes and duty cuts, and upstream share remaining at a third
of gross under-recoveries (without including any notional losses). Realizations at these
levels are, however, clearly unsustainable, given rising under-recoveries of the OMCs,
worsening Gov’t finances, and the lack of political will to raise prices of controlled fuels.
Production growth continues, but near-term upsides unlikely — OIL’s 2Q crude
production came in at 0.99 MMT (+6.2% yoy, +3.6% qoq), in line with expectations.
Gas production growth was even stronger (+16.1% yoy, +5.6% qoq), on the back of
ramp-up of supplies to the NRL refinery from the Duliajan-Numaligarh pipeline.
However, with most production growth now largely behind us, we expect volumes to be
sustained at current levels in the near-term.
No clarity on subsidy sharing, 2H could be a dampener — A combination of
sustained strength in crude and sharp rupee depreciation has led to the under-recovery
situation considerably worsening in the last couple of months. Gross under-recoveries
for FY12 are unlikely to come in below Rs1.2 tr (Rs214bn in 2Q) if current trends in
crude, currency, and policy continue, considerably increasing uncertainty for the gov’towned
upstream companies for the rest of the year. A re-rating in the absence of a
reversal in trend of at least one of the above external factors is unlikely. OIL’s cash on
books at Rs136bn (Rs565/sh) could, however, provide downside support.
Alert: 2Q: Some One-Offs, but Strong Operationally
Operationally strong 2Q — OIL’s 2QFY12 PAT came in at Rs11.4bn (+24% yoy,
+34% qoq), boosted by a combination of production growth and subsidy burden
remaining at one third. Reported PAT was, however, below estimates owing to one-off
provisions of Rs2.86bn on employee costs and higher-than-expected DD&A costs,
which also included one-offs (provision for minimum work programme) of cRs3.6bn.
No subsidy surprises; net realizations at US$86 — OIL’s 2Q net realizations came
in at US$86/bbl, and were driven by strong crude prices, lower subsidy burden
following the June price hikes and duty cuts, and upstream share remaining at a third
of gross under-recoveries (without including any notional losses). Realizations at these
levels are, however, clearly unsustainable, given rising under-recoveries of the OMCs,
worsening Gov’t finances, and the lack of political will to raise prices of controlled fuels.
Production growth continues, but near-term upsides unlikely — OIL’s 2Q crude
production came in at 0.99 MMT (+6.2% yoy, +3.6% qoq), in line with expectations.
Gas production growth was even stronger (+16.1% yoy, +5.6% qoq), on the back of
ramp-up of supplies to the NRL refinery from the Duliajan-Numaligarh pipeline.
However, with most production growth now largely behind us, we expect volumes to be
sustained at current levels in the near-term.
No clarity on subsidy sharing, 2H could be a dampener — A combination of
sustained strength in crude and sharp rupee depreciation has led to the under-recovery
situation considerably worsening in the last couple of months. Gross under-recoveries
for FY12 are unlikely to come in below Rs1.2 tr (Rs214bn in 2Q) if current trends in
crude, currency, and policy continue, considerably increasing uncertainty for the gov’towned
upstream companies for the rest of the year. A re-rating in the absence of a
reversal in trend of at least one of the above external factors is unlikely. OIL’s cash on
books at Rs136bn (Rs565/sh) could, however, provide downside support.
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