Contents
Investment Summary ......................................................................... 3
De facto change in retail auto fuel pricing is under way ...............................3
Decline in marketing losses to improve OMCs’ margins .................3
Domestic GRMs to exceed USD4.5/bbl in FY12f ......................................4
OMC stocks deserve to be re‐rated further ........................................4
Reform in pricing of retail auto fuels already visible ......................... 5
De facto deregulation is under way ....................................................5
Likely to face fewer obstacles now..................................................6
Slow and phased process expected..................................................8
Under‐recoveries likely to be cINR260bn in FY12f ...........................8
Margins to surge on lower marketing losses....................................... 9
FY10f marketing margins to improve on lower product prices ...................9
Base case: Under‐recoveries likely to be cINR222bn in FY10f....................11
EBITDA projected to be cINR259.8bn in FY10f ................................11
35% higher EBITDA, if losses on LPG and SKO are reimbursed ..................11
Deferring deregulation to reduce FY11f EBITDA by 15%.......................11
Domestic GRMs to expand beyond USD4.5/bbl in FY12f ................... 12
Global consumption likely to revive post 1H2010f…...............................12
…to lead to low product spreads...................................13
Utilization to start improving in 2011f as more refineries shut ...................14
Crude spare capacity likely to rise to c4.5mbpd in 2012f......................15
Light‐heavy spreads likely to be cUSD1.7/bbl in 2012f ..........................16
Benchmark Singapore GRMs to average at cUSD3.0/bbl in 2009f..................17
Indian refiners likely to enjoy higher premium than Singapore GRMs ...............18
Among OMCs, IOCL likely to enjoy highest GRMs....................................19
Valuation: Stocks merit further re‐rating on de facto deregulation............ 21
Domestic OMCs traded at a discount to international players ..............21
Re‐rating likely...................................................................................21
Valuation based on weights given to P/E and P/B ...........................21
Risks to our estimates .................................................................22
Annexure I: To reduce cyclicality, companies looking at integration .............. 23
Global industry structure....................................................................23
Changing milieu: ‘Majors’ better equipped to handle cyclicality ..............25
Regulatory changes fostered competition in most countries ....................26
Where does India stand?.............................................................26
Annexure II: Capacity delays led to sharp rise in refinery utilization ............. 29
Oil consumption grew at a CAGR of c1.3% from 2000 to 2008...............29
Crude oil supply grew at just 1.1% from 2000 to 2008 .......................30
Refinery capacity growth lagged throughput growth till 2008...................30
Increase in light‐heavy spreads added to the refining margins.............32
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