ENAM Securities
India Research
Essar Oil Ltd
ENAM Research is available on Bloomberg (ENAM <Go>), Reuters.com and Firstcall.com 30 September 2008
Rs 160
Target Price: Rs 196
Potential Upside: 23%
Sector avg. upside: 13% to 23%
(mkt cap wtd)
FLASH N
OTE
Downgrading to sector: Neutral
Relative Performance
0
100
200
300
400
500
600
Oct-07
Mar-08
Aug-08
Sensex
Essar Oil
Source: Bloomberg, ENAM Research
Stock data
No. of shares
: 1,202mn
Market cap
: Rs 192bn
52 week high/low
: Rs 360/ Rs 49
Avg. daily vol. (6mth) : 9.3mn shares
Bloomberg code
: ESOIL IB
Reuters code
: ESRO.BO
Shareholding (%) Jun-08 QoQ chg
Promoters
:
18.6
0.0
FIIs
:
6.5
0.8
MFs / UTI
:
0.0
(0.0)
Banks / FIs
:
0.0
(0.3)
Others
:
75.0
(0.6)
REFINING MARGINS UNDER PRESSURE
EOL’s refining margins are likely to be under pressure in near to
medium term on falling petroleum product demand and huge capacity
build-up in next 3-6 months. Additionally, EOL will have a double
whammy on account of a possible increase in capex for refinery
expansion (high borrowing costs) and the completion of the project at
a time when a lot of new capacities are getting operational.
Key highlights
Pressure on refining margins: With close to ~ 1.3mb/d
capacity coming on-stream (incl. RPL’s 580kb/d) in next 3-6
months in an environment of faltering product demand (IEA
forecast for crude oil demand for 2008 has come down from
1.7mb/d to 0.8mb/d), we believe that there will be pressure on
refining margins in near to medium term. Also, the high volatility
in crude oil prices and exchange rate can dent EOL’s earnings for
FY09.
Possible increase in capex for refinery expansion: EOL is
expanding its refining capacity from 220kb/d to 705kb/d by
Dec’10 at total capex of USD 6.0bn. EOL has already got loan
commitments of USD 4.5bn (out of USD 4.8bn) and is close to
achieving financial closure. However, rising interest costs could
increase the expansion cost by 5-7% and pu