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4-Wheelers marching ahead in March…

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4-Wheelers marching ahead in March…

The month of March witnessed an expected surge in auto volumes as pre budget buying was prevailing in the first half of the month and since there was no negative news for diesel cars except the expected hike of 2% in the excise duty across the board, the cheer continued in the second half as well. Seasonally a strong month – March saw companies like Tata Motors, Maruti and M&M (our top picks in that order) post all time high monthly sales numbers with each of their segments performing well. With Tata Motors touching the magic figure of 1 lakh, Maruti crossing its pre strike volume number and M&M with its new launches helping them to put up a record high in UV sales the auto industry saw a firm uptick. On the other hand, TVS continued its disappointment, signaling that Honda is taking its toll on their performance . Each of their segments saw a sharp fall in growth- thus showing fundamental weakness. TVS’s peers also posted a subdued show, however better than TVS. 2 wheeler companies have given a word of caution stating that they are still in a slowdown mode and there is nothing motivating to predict a bullish overtone to the 2 wheeler space in the coming year as of yet.

 

Ashok Leyland (TP – Rs30, Neutral)

Ashok Leyland’s March sales exceeded our expectations, as they sold 14,285 units, a growth of 17% yoy. This constituted the newly launched LCV Dost which sold 2,211 units, while the actual MHCV volumes declined by 0.8% yoy to 12,074 units. However, MHCV sales grew by 27% mom and LCV sales grew by 40% mom. The total sales surpassed Ashok Leyland’s full year target of 1 lakh units. In FY 12, the company grew at a pace of 8.4%. The company sold 94,416 MHCVs and 7,593 LCVs in FY12. Improvement in South Indian markets will remain a key to success in FY13.

 

Bajaj Auto (TP – Rs 1,620, Neutral)

Bajaj posted just 9% yoy growth in March and a 4% dip on mom basis. Motorcycles grew by 10% yoy while 3 wheelers grew by 4% yoy. Despite March being a strong month for auto industry, Bajaj like its peers posted a soft performance, below our expectations. In FY 12, the growth was 14%, while the company estimates to grow at 15% in FY 13, which we believe is a bit too optimistic considering the difficult operating environment in the midst of a slowdown. Exports of the company will also feel the heat with Sri Lanka (20% of exports) increasing import duties.

 

Hero Motocorp (TP- Rs 2,000, Neutral)

Hero posted a flattish growth in March at 5.28 lakh units, while on a yoy basis it was a growth of just 2%. The subdued performance of two wheelers signifies slowdown and sluggishness in the domestic two wheeler industry. However, competition from Honda may eat up the market share of TVS ( which has already started to happen), followed by Bajaj and then compete with Hero as the gap between the scale of Hero and Honda is very wide. Hence, we believe that within 2 wheelers, Hero is one of the stocks to look at.

 

Mahindra and Mahindra – (TP- Rs783, BUY) – Auto segment sails through, FES segment recovers…

M&M sold 47,001 units in the auto segment, a 25% growth yoy which was a stellar figure for M&M, a record high. This performance was better than our expectations. Passenger UV sales in the month grew by 30% yoy to 21,257 units, which was 14% growth mom. The strong sales on the recently launched XUV 500 and the new Xylo led to this strong growth. 4W pick-up segment which includes Gio, Genio and Maxximo posted a robust 28% growth yoy as the LCV segment continued to grow at a strong pace indicating expansion in the total sub 1 tonne LCV market. Verito sales were strong in the month at 1,763 units up a mammoth 73% yoy v/s 1,619 units in February. Export sales moved up by 31% yoy  to 2,659 units, however, this was flattish mom. Farm Equipment Segment (FES) which had posted a very robust growth of 71% in October almost halved in November, and moved down even further to 15,315 units in December and continued to go down with a negative growth of 6% yoy in January. This negativity went further deep in February, as M&M reported 20% dip in this month on issues of increasing delinquencies on the agri credit, slowdown of farm yields and overall tepid growth in Indian economy. However, March showed some revival in tractor sales on a mom basis, as they sold 17,405 units, almost a 15% growth mom. However, yoy they declined by 12%.  In FY 12, the company’s auto sales grew by 28%, while FES ended the year with just 10%, v/s 17-18% projected growth by management in October.

 

Maruti Suzuki – (TP – Rs 1,475, BUY)- Performance in line with expectations.

Maruti Suzuki (Maruti)‘s sales in this month came at 125,952 units as compared to 121,952  units, 3.3% growth on yoy basis, while on mom basis it was up by 6%. In a scenario where petrol prices are moving up, the bread and butter segment, the mini segment of Maruti comprising Alto, Wagon R and A Star de-grew by 10% yoy. The compact segment comprising Swift, Ritz and Estilo showed a solid growth of 23.6% as demand for diesel cars is moving northwards on the backdrop of gap between petrol and diesel prices increasing and the production of high demand new Swift getting back to normalcy of >17,000 units per month.  Vans segment grew by 146% yoy as the pre-launch dispatches of Ertiga started in March itself. Only the SX4 model faced a huge decline of about 58.1% yoy as there was dearth of diesel engines. Exports grew by 14.7% yoy, while growing at 17% mom to sell 13,228 units with non European geographies like Asia-Pacific, CIS countries and Africa showing growth momentum . In line with the new Dzire model launched in February, it has started creating a base of 15000-16000 units per month as it grew 60% yoy to 16,541 units in March. Any rate cut by the central bank of India may have a positive impact on the volumes, while petrol price hike will impact sales adversely. Status quo maintained on diesel cars taxation is a good news for Maruti and the cheer is expected to continue in coming months though 2% excise duty hike getting passed on have made cars costlier. State level levy of extra excise duty on cars will impact sales in those states in coming months(eg:- Maharashtra). Expansion of diesel engine capacities will help the company to cater to the bludgeoning demand for diesel cars. In FY 12, Maruti’s sales de-grew by 10.8% on competition, fuel price hikes, interest rate increase and strikes at the Manesar plant.

 

Tata Motors – (TP- Rs318, BUY)- Record high!

March sales for the company were at a record high of 100,414 units, 20.5% up yoy and 9% up mom. CV sales grew by a healthy 16.7% yoy, out of which LCV sales were up by a healthy 37% yoy signifying LCV segment’s defiance of the macro uncertainties. New launches like the variant of Ace Zip led to the growth in LCV. MHCV sales however slipped by 5.8% yoy while growing by 13.7% mom. PV segment sales have started to pick up since last quarter as they grew by 33.6% yoy on strength coming from Indica range which was up 64.6% yoy mainly on prebuying effect of budget and on new launch of Indica Vista launched a quarter back. Utility segment sales went up by 40.5% yoy. Indigo range sales were also up by 15% after underperforming in February. Nano sales were the star performer as they grew smartly up at 10,475 units, 20.3% up yoy and 13.6% mom. Continued strength in CV business aided by LCVs and robust PV sales have led to a continuous solid growth in volumes of the company. Total FY 12 growth of the company has been 13.3%.              

 

TVS Motor – (TP- Rs 50, Neutral)- Seasonally up… though the broad picture remains negative

TVS sold 1.83 lakh units in March in line with our subdued estimate. This was a de-growth of 4% yoy and a growth of 6% mom. Motorcycles de-grew by 17% yoy, while scooters fell by 7.6% yoy. However, the low cost mopeds performed well by growing 16% yoy. 3 Wheelers have continued their underperformance as they declined 33% yoy and 26.5% mom. In FY 12, TVS sales grew by just 7.9%. With rising competition in the scooter segment from Honda, M&M and Suzuki, slowdown in motorcycle segment and structural weakness in 3 Wheeler segment , we continue to believe that TVS will be a laggard in the 2W segment.

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Blockbuster start to 2012

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Blockbuster Start to 2012

The start of 2012 has been a thrilling experience for anyone who is into stock markets. It’s been a stupendous rise for some of the major stocks and indices are clocking gains as I write this piece of article.

What needs to be seen now is whether the rally has gathered enough momentum to sustain the same, in short whether it is a steroid providing a short term boost or a proper medication. It’s not how effective a medicine works at the first instance, it is how far can the medicine last and what would be the repercussions of the same is something which needs to be watched with bated breath.

FII’s have made a strong comeback into our markets. Till date since the onset of 2012, they have pumped in 25000 cr(approx), and let alone in the month of Feb they have pumped in 14000 cr (according the the actual numbers from SEBI). We have already seen, some of the stocks making a brilliant comeback and rallying more than 50% of their price since the last 5-7 weeks. The European problems and its issues are being sidelined by the markets, and we can now say that they are forward looking, especially with the painful Q3FY12 period for most of the local companies getting a relief.

I believe that the undertone of this strong rally has purely been the turnaround of the interest rate cycle. RBI cutting the key interest rates and signalling that inflation cooling further will give them a leeway to relax the steep rise in interest rates and Infact go for a cut in the same. The banking sector which comprises a major proportion of our stock market capitalisation will heave a sigh of relief with this reversal of interest rate cycle. This will in turn have a trickling down effect to rate sensitive sectors such as Real Estate, Auto stocks, Capital Goods etc.

Technically one of the best part of this “relief rally” has been that we have comfortably crossed the 200 DMA, and have managed to sustain that since the start of Feb 2012. This is an extremely positive sign for the outlook going forward. Some stocks have touched their 52 weeks high and some of them have rallied to lifetime highs in this rally. It is a good sign, but what is now important is when the markets would go into the consolidation phase the kind of correction in the stocks which we will witness then, would determine the sustenance of this rally going forward.

It is true that stocks would always provide a higher percentage returns vis a vis the index, but it is the index which will show the actual “direction of the trend”.

Markets have proved it yet again that “ To break extreme pessimism, you need extreme optimism.”

Good come back!

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Good come back!

 Better than expected January performance surprised us as December was quite a low for many of the companies. Maruti was more than a surprise as quickly getting back to recovery after abysmal October sales was not expected. However, sustainability of the same is a question as government’s stand on diesel vehicles will play a big role in future sales of Maruti. Also, competition, and higher fuel prices are still downside risks for the company. M&M put up a robust show on the auto side and is expected to excel further as XUV500 sales gains momentum. On FES side, the performance was down yoy, but showed a good pull back sequentially. Tata Motors stunned one and all on the street as all of its segments showed a strong performance. CV sales were buoyant on strong LCV sales, while PV sales were up on strong Indica and Indigo sales. TVS was a big disappointment as its market share is getting cut on strong competition all around. Given the rally witnessed in stock prices, currently we believe that the valuations of most of the auto companies seem stretched. Hence, we are neutral to underperformer on most of the auto stocks now. We however maintain Buy on M&M and Ashok Leyland.

 

Hero Motocorp – (TP – Rs1,996, Neutral)Still holding on…

HMCL sold 5.2 lakh unts in January, which was a 11.55 yoy growth and a fall of 3.7% mom. This was slightly lower than our expectation of 5.25 lakh units. The YTD growth of the company now stands at 17.4%, the strongest among the two wheeler companies, while we are expecting 15% growth in FY 12. HMCL has been the only two wheeler company which is still showing traction in growth vis-à-vis other players who have shown moderation. A sudden fall in mom volume growth cannot be ruled out if HMCL is pushing volumes to the dealers.

 

Mahindra and Mahindra – (TP- Rs772, BUY) – Auto segment posts strong performance, FES slows down further

M&M sold 44,718 units, a 22% growth yoy while it was a growth of 5% mom. This performance was better than our expectations. Passenger UV sales in the month grew by 15% yoy to 18,446 units, which was 2% growth mom. 4W pick-up segment which includes Gio, Genio and Maxximo posted a robust 35% growth yoy as the LCV segment continued to grow at a strong pace indicating expansion in the total sub 1 tonne LCV market. Verito sales were strong in the month at 1,529 units up 37% yoy v/s ~1,300 units in December. Export sales moved up by 95% yoy  to 3,348 units with traction seen in major export markets like South Africa and US. Farm Equipment Segment (FES) which had posted a very robust growth of 71% in October almost halved in November, and moved down even further to 15,315 in December has posted a negative growth of 6% yoy in January. This was still better than what we had expected and is above the December number of ~15,500. Opening up of bookings for XUV 500 again in 19 cities of India in January will lead to a better volume performance from this model in FY 13. Since the booking have opened, XUV 500 has registered bookings of more than 5,900 units. Pan India launch will happen once the capacities move up to >5,000p.m. levels in May from current levels of 2,000 p.m.

 

Maruti Suzuki – (TP – Rs 1015, Underperformer)- Strong recovery

Maruti Suzuki (MSIL)‘s sales in January came at 115,433 units as compared to 92,161 units, 25% growth on mom basis, while on yoy basis it  was up by 5.2%. In a scenario where petrol prices are moving up, the bread and butter segment, the mini segment of Maruti comprising Alto, Wagon R and A Star de-grew by 2.4% yoy. The compact segment comprising Swift, Ritz and Estilo showed an improvement as demand for diesel car is moving northwards on the backdrop of gap between petrol and diesel prices increasing.  Vans segment also declined by 11% yoy, but showed a good growth of ~40% mom. Exports were the star performer again as they grew by 54.3% yoy as they sold 14,386 units a jump over ~9300 units yoy, while mom, it was lower by 300 units only. However, SX4 and Dzire segments posted yoy de-growth, at 12% and 10% respectively. Any rate cut by the central bank of India may have a positive impact on the volumes, while petrol price hike will impact sales adversely and on the other hand any call on the diesel cars in upcoming budget may hamper diesel car sales. Launch of Ertiga needs to be watched out as low ground clearance may pose a setback to the company while pricing between Rs7-8 lakh will push sales.

 

Tata Motors – (TP- Rs253, Neutral)- Stellar performance!

January sales for the company were at 87,465 units, 16% up yoy and 6% up mom. CV sales grew by a healthy 14% yoy, out of which LCV sales were up by 15% yoy signifying LCV segment’s defiance of the macro uncertainties. New launches like the variant of Ace Zip led to the growth in LCV. MHCV sales also grew by 11%, which was a strong growth again. PV segment sales have started to pick up since last couple of months as they grew by 14% yoy on some strength coming from Indica range which was up 9% yoy on new launch of Indica Vista launched a quarter back. Utility segment sales went up by 38% yoy. Indigo range sales were smartly up by 10% yoy. Nano sales grew at 7,723 units  15% up yoy and showing a quick recovery over the past few months and lows hit at 500 units in November 2010. Continued strength in CV business aided by LCVs and recovery in PV sales have led to a solid growth in volumes of the company.

 

TVS Motor – (TP – Rs55, Underperformer)- Losing out to competition

TVS sold just 1.73 lakh units in January missing our estimate of 1.82 lakh by a good margin. This was a growth of just 3% mom and 5% yoy. Scooters segment grew by just 2% yoy to 41,469 units, while motorcycle sales in January reported a de-growth of 5%. Three wheelers are posting a consistently disappointing performance as the company sold just 2,402 units v/s 3,427 units a year ago. Mopeds segment, which is the major volume earner for TVS declined by 13.8% yoy to 45,937 units v/s its monthly run rate of~64,000 units. With rising competition in the scooter segment, slowdown in motorcycle segment and structural weakness in 3wheeler segment , we now believe TVS will be a laggard in the 2W segment.

 

Written by Fundamental Side

February 8, 2012 at 6:32 pm

Two wheelers hit a roadblock, 4 wheelers better than expectations

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Two wheelers hit a roadblock, 4 wheelers better than expectations

 In a lean month of December, 4 wheeler companies posted a good performance despite severe pressures in terms of consumer sentiments, higher cost of ownership, high fuel prices, maintenance shutdowns at few companies and expected slowdown in demand. Maruti continued to sell more than 90,000 units, while M&M sold >42,000 units of auto sales including SUVs, LCVs and 3 wheelers, which was a good growth. Tata Motors also improved its PV sales performance with Nano putting one of its best performances in the recent past. On the CV side, LCVs continued their robust performance while MHCV grew within their limits. 2 wheeler sales spoiled the otherwise good show from the auto pack, as Bajaj Auto posted a dismal show and TVS Motor put up a suppressed growth. Going forward, with seasonally strong Q4 coming up, we see some recovery in auto sales. Any cut in interest rates or any moves by the government in budget like application of higher excise duty on diesel cars will be the triggers to the sector. Expected price hikes from most of the players may have a contra-intuitive impact on the volume performance of the sector. We continue our cautious view on the sector.

 

Bajaj Auto – (Under review) – Unexpected weakness witnessed

Bajaj posted a very disappointing sales performance in December as sales plummeted by 18% mom to 3,05,000 units, while growing at just 10% yoy.  Motorcycle sales were up 8% yoy and down 21% mom. A maintenance shutdown for 4-5 days, increasing inventories at the dealers’ end, weakening demand for premium segment two wheelers and lukewarm response to the recent launch of Boxer bike led to a tepid performance by Bajaj Auto. Exports de-grew by 7% mom while growing by 25% yoy. Going forward, as retail inventory gets cleaned up and seasonally good Q4 comes up, we are expecting Bajaj Auto to get back to the level of >350,000 units.

 

Hero Motocorp – (TP – Rs1,928, Neutral) – Solid resilience!

HMCL has surprisingly held a 5.4 lakh units  of sales  performance, a growth of 7.8% yoy and flat growth mom.  The company is a proxy to the rural growth in India and continues to post stellar numbers on growing rural economy even when its competitors are faltering. We expect them to put up a volume growth of 15% in FY 12, however we are concerned about competition coming up from Honda in FY 13 as they are rapidly ramping up the capacities against Hero who are at nascent stage of setting up new capacities which may become a constraint to their  growth. Slightly stretched valuations and margin concerns are other worries.

 

Mahindra and Mahindra – (TP- Rs889, BUY) – Auto segment posts decent performance, FES slows down

M&M sold 42,761 units, a 26% growth yoy while it was a growth of 5% mom. UV sales in the month grew by 23% yoy to 18,078 units, which was 8% growth mom. 4W pick-up segment which includes Gio, Genio and Maxximo posted a robust 35% growth yoy as the LCV segment continued to grow at a strong pace indicating expansion in the total sub 1 tonne LCV market. Verito sales were strong in the month at 1,263 units up 41% yoy v/s 896 units. Export sales moved up by 89% yoy  to 2,870 units with traction seen in major export markets like South Africa and US. Farm Equipment Segment (FES) which had posted a very robust growth of 71% in October almost halved to 17,527 as inventory correction happened in November and moved down even further to 15,315 in December and we expect the current monthly run rate of tractors to be maintained, thus punching a growth of close to 18% in FY 12. Opening up of bookings for XUV 500 again in 5 cities of Mumbai, Pune, Bangalore, Chennai and Delhi in January will lead to a better volume performance from this model in FY 13. Pan India launch will happen once the capacities move up to >5,000p.m. levels in May from current levels of 2,000 p.m.

 

Maruti Suzuki – (TP – Rs 887, Underperformer)- Stable sales performance

Maruti Suzuki (MSIL)‘s sales in December came at 92,161 units, flattish mom, while on yoy basis it was down by 7% as consumer sentiments in PV industry deteriorated off late. The flattish growth indicates signs of stability at Maruti’s end even when there was a maintenance shutdown at their plants. Had the  shutdown not been there, sales would have come close to 100,00 level. In a scenario where petrol prices are moving up, the bread and butter segment, the mini segment of Maruti comprising Alto, Wagon R and A Star de-grew by 16% yoy. The compact segment comprising Swift, Ritz and Estilo remained flat yoy.  Vans segment also declined by 42% yoy. Exports were the star performer as they grew by 50.5% yoy s they sold 14,686 units a jump over 11,000 run rate observed over the past few months. However, SX4 and Dzire segments posted growth, at 11% and 6% respectively. Any rate cut by the central bank of India may have a positive impact on the volumes, while petrol price hike will impact sales adversely. New launches from competitors add fuel to this. The upcoming auto expo in January will see two MPV launches from Maruti (one being named as Ertiga).

 

Tata Motors – (TP- Rs195, Neutral)- Performance par excellence!

December sales for the company were at 82,278 units, 22% up yoy and 7% up mom. CV sales grew by a healthy 14% yoy, out of which LCV sales were up by 20% yoy signifying LCV segment’s defiance of the macro uncertainties. New launches like the variant of Ace Zip led to the growth in LCV. MHCV sales also grew by 5%. PV segment sales have started to pick up since last couple of months as they grew by 47% yoy on some strength coming from Indica range which was up 57% yoy on new launch of Indica Vista launched a quarter back. Utility segment sales went up by 35% yoy. Indigo range sales were smartly up by 32% yoy. Nano sales grew at 7,466 units  29% up yoy and showing a quick recovery over the past few months and lows hit at 500 units in November 2010.

 

TVS Motor – (TP – Rs60, BUY)- Still below the monthly mark of 2lakh…

TVS Motor failed again this month to sell 2 lakh units. In October they had missed due to an unexpected maintenance shutdown. However, the fall in November came on weak motor cycle sales and the same continued in December as well. Total sales showed a flattish to a slight negative growth on yoy basis at 170,428 units, while sequentially they de-grew by 3%. Scooter sales grew by 7%, while motor cycle sales declined by 8%. Bloating up of inventory pipeline on weak retail demand led to such an underperformance. TVS’s 3 wheeler sales are on a lower trajectory as they sold just 2,523 units from 3,431 units sold in last December. Exports grew by 6% yoy. We believe that 15% volume guidance by management looks too optimistic. We expect 9% growth from TVS this year. In view of attractive valuations, upcoming new launches and economies of scale, we remain positive on TVS even after factoring 9% volume growth this year and 11% next year.

Mahindra Finance- Rural And Semi Urban Market Growing

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We recently met the management of Mahindra Finance. These are some of the key highlights.

Rural and semi urban markets are growing at 20% plus rates versus urban and metros where growth rates have dropped considerably.

Multi product multi application and multi customer is the way forward. These benefits lower concentration to particular states which reduces state specific risks. This is one of the reasons the company is reasonably sure of not breaching the gross npa levels of FY08 and FY09.

The process of securitization which was dead post the draft guidelines have once again begun and the company has securitized Rs300 crs in November 2011. However the difference is in the process of accounting for securitization revenue which has moved from the upfront accounting to amortization

Public sector banks which were aggressive in the market have lowered their enthusiasm as they are battling issues of credit loss and customer defaults. Hence competition has intensity has come down

The company is not strapped for asset growth. Even on its internal benchmark of financing 40% M&M vehicles it is at the 30% mark leaving ample room for growth within the parent portfolio. Outside M&M portfolio, it has tied up with Hyundai, Tata Motors, Ashok Leyland.  It has built relationships with dealers and OEMs and hence a certain process of growth is an automatic process.

This year the focus will be on liabilities (securitization guidelines, acquiring excess liquidity from banks and diversifying sources) and on policies (the regulator has tightened the screws on consumer lending, Usha Tharot Committee report)

The company will continue to access the variability of the market through – collection efficiencies and the regular nomenclature – underline cash flows of the product – dealer pressure on financing activities. Based on these activities the company takes a call on LTVs and product strategy and growth level targets.

 

Written by Fundamental Side

December 22, 2011 at 5:46 pm

Weakening Rupee & Dividend Yield Stocks

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Weakening Rupee & Dividend Yield Stocks

With the rupee weakening by more than 19% this year we find ourselves caught up in an inflationary environment despite a series of rate hikes by the RBI. India Inc is now caught in a scenario of slack demand, rising input costs ,wage costs and interest cost coupled with MTM losses on its FX loans. In such a scenario it is no surprise that Infosys continues to remain a safe heaven for investors as it will continue to report earnings growth and has proven ability of displaying the best organic revenue growth among leading IT companies over the past 10 years with a return on capital of more than 65%.  

As the market continues to hide in IT stocks like Infosys, TCS & HCL Technologies in times of rupee weakening, the thirst for good dividend yield stocks beyond the NIFTY FIFTY is still prevailent and we find that the steep rupee depreciation has now caught up with some of the so called “Dividend Yield” stories which are part of the BSE 500. One such example is the Pune based pipe producer – Finolex Industries which apparently has a dividend yield of 7% at the current price- but one look at its debt equity and import intensity is enough to get the sense that earnings would degrow thereby casting a shadow on such dividend yield themes. It is for this reason that we like free cash generating business and prefer to buy such business for dividend yield despite low growth and when you do get growth out of such business then you reap it big like in the case of the cigarette company – VST Industries.

 

Written by Fundamental Side

December 16, 2011 at 12:46 pm

OIL India – going strong

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OIL India – going strong

Q2FY12 crude oil & natural gas production were record highs for the company.

Crude oil production rate has been increasing continuously and OIL is presently producing crude at a rate of 3.96 MMTPA (FY12 MoU target: 3.76 MMT). This is noteworthy as most of its production is coming from aging fields in the North East. There has been a steady growth in oil production since the last 3 years through induction of new technologies and accelerated exploration and drilling campaign. Q2 FY12 production rate is even higher than the FY13 MoU target of 3.91 MMT.

Gas production is set to increase at CAGR of 7.1% from FY11-13 driven by steady production from its NE & Rajasthan fields and monetization of contingent reserves. Gas supply to Numaligarh Refinery Ltd (NRL) would also be ramped up to 1 mmscmd. Revision in APM & non-APM gas prices after FY14 is expected to provide another jump to gas sales going forward.

We assume 39% of the gross subsidy burden to be borne by the upstream sector in perpetuity. Taking into account the fact that the upstream sector has shared 33% of the subsidy burden in H1 FY12, we expect the upstream sector to share 51% of the total under recoveries for H2 FY12. However, we expect OIL to post FY12 net realization of $ 67/bbl.

Oil India will also be holding a Board Meeting on Dec 20, 2011 to consider the declaration of Interim Dividend for FY12. As the company is holding a cash balance of Rs 136 bn as of Sept 2011 which translates into a whopping Rs 565/share, we expect a big dividend which will act as a trigger for the stock price.

We maintain our BUY rating with a target price of Rs 1,526.

Written by Fundamental Side

December 16, 2011 at 12:41 pm