The Government of India finally provided the much needed respite to the oil sector by way of price hikes of regulated products & duty relief on both crude and petro products. The Govt. has increased the retail prices of diesel by Rs.3/lit, LPG by Rs.50/cyl and kerosene by Rs.2/lit. Going further, the Govt. has also reduced excise duty on Diesel by Rs.2.6/lit and has also abolished customs duty on crude imports while reducing customs duty on petro products by 5%.
Valuation
Our SOTP valuation for ONGC yields a target price of Rs.338. Our price target translates into EV/boe of $5.9/boe and FY12E & FY13E P/E of 11x and 10.6x respectively. We have conservatively assumed the upstream sector to share 39% of gross under recoveries and excise duty on diesel to be restored to Rs.4.6/lit in FY13. The upcoming FPO may result in downward pressure on the stock price as there have been precedents of PSU FPOs being issued at a discount to the CMP to achieve maximum subscription. At our target price of Rs.338, the potential upside is 23.4% and we upgrade our rating on the stock to BUY and recommend subscribing to the FPO.
We value OIL India using DCF valuation with WACC of 12% and terminal growth rate of 2%. We maintain our BUY rating and raise our target price to Rs.1,512. Our price target translates into EV/boe of $6.1/boe and FY12E & FY13E P/E of 10.1x and 10.5x respectively.
We value MRPL using EV/EBITDA multiple of 6.25x on FY13E EBITDA and arrive at our price target of Rs.107, which translates to a hefty upside of 38.1%. MRPL is our top pick to play the strong refining cycle
We value Essar Oil by using SOTP valuation. We value the refinery using 6.25x FY13E EV/EBITDA and the Mehsana and Raniganj blocks using DCF. We value the Ratna/R-series & Nigerian blocks using EV/boe multiple. We upgrade our rating on the stock to BUY with a target price of Rs.168, which translates into an upside of 34.9%.
Please find attached file containing our view on - Oil Sector
LKP Research
10th Floor, Nariman Bhavan, Vinay K Shah Marg, Nariman Point, Mumbai – 400 021
Email: research@lkpsec.com, Web: www.lkpsec.com
The information in this documents has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true and is for general guidance only. While every effort is made to ensure the accuracy and completeness of information contained, the company makes no guarantee and assumes no liability for any errors or omissions of the information. No one can use the information as the basis for any claim, demand or cause of action.
LKP Securities Ltd., and affiliates, including the analyst who have issued this report, may, on the date of this report, and from time to time, have long or short positions in, and buy or sell the securities of the companies mentioned herein or engage in any other transaction involving such securities and earn brokerage or compensation or act as advisor or have other potential conflict of interest with respect to company/ies mentioned herein or inconsistent with any recommendation and related information and opinions. LKP Securities Ltd., and affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past.
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