Oil & Gas: OMCs in new era; transforming from cyclical to structural plays

Sector Update | 22 July 2015

Oil & Gas | Update

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BPCL: Financial & Valuation (INR b)

Consolidated

Y/E Mar

2015 2016E 2017E

Sales

2,424

2,459

2,445

EBITDA

96.0

103.3

112.0

Adj. PAT

48.1

54.7

58.8

Adj. EPS(INR)

66.5

75.6

81.3

EPS Gr. (%)

22.9

13.7

7.5

BV/Sh(INR)

310.4

356.8

407.7

RoE (%)

23.0

22.7

21.3

RoCE (%)

17.2

19.0

18.5

Payout* %

35.1

38.7

37.4

Valuation

P/E (x)

14.3

12.6

11.7

P/BV (x)

3.1

2.7

2.3

EV/EBITDA x

9.0

8.3

7.9

Div. Yld (%)

2.3

2.7

2.8

*Based on standalone

HPCL: Financial & Valuation (INR b)

Y/E March

2015 2016E 2017E

Sales

2,064

1,724 1,861

EBITDA

54.2

59.9

66.0

Adj. PAT

27.3

29.0

31.8

Adj. EPS (INR)

80.6

85.4

93.7

EPS Gr. (%)

57.6

5.9

9.7

BV/Sh.(INR)

473

518

579

RoE (%)

17.6

17.2

17.1

RoCE (%)

11.0

12.8

13.0

Payout (%)

35.6

35.1

Valuations

P/E (x)

10.9

10.2

9.3

P/BV (x)

1.9

1.7

1.5

EV/EBITDA (x)

7.3

6.4

5.7

Div. Yield (%)

2.8

3.0

3.2

IOCL: Financial & Valuation (INR b)

Y/E March

2015 2016E 2017E

Sales

4,483

3,283

3,682

EBITDA

93.4

216.0

241.6

Adj. PAT

32.4

108.4

124.8

AdjEPS(INR)

13.4

44.7

51.4

EPS Gr. (%)

-39.2

234.3

15.1

BV/Sh.(INR)

294

322

374

RoE (%)

4.7

14.5

14.8

RoCE (%)

6.3

14.4

14.5

Payout (%)

41.0

37.7

37.4

Valuations

P/E (x)

32.8

9.8

8.5

P/BV (x)

1.5

1.4

1.2

EV/EBITDAx

16.1

6.8

5.8

Div. Yld (%)

1.1

3.2

3.6

OMCs in new era;

transforming from cyclical to structural plays

Increasing valuation multiples, revised fair values imply 26-34% upsides



OMCs are set to transform into structural investment plays. The twin tailwinds of oil

sector reforms and low oil prices should boost earnings and valuations.

OMCs’ economic moat is widening, led by (1) scope for meaningful increase in

marketing margin and profitability, (2) slower ramp-up by private marketers, (3) high

volume growth, aided by expected GDP boost, and (4) improving balance sheet. This

should lend greater predictability and sustainability to earnings.

OMC stocks have risen sharply (up 33-120%) in the last one year, backed by higher

earnings. However, re-rating is pending, in our view. OMCs’ EV has grown just 16-60%

against an expected 140-220% increase in profits by FY16.

We increase our valuation multiple as we expect marketing business to command

higher valuations as pricing freedom will improve profitability meaningfully. We assign

EV/EBITDA multiple of 5.5-6x for refining and 8x for marketing (v/s 6x earlier for

overall EBITDA), resulting in 26-34% upside in OMC’s.

Our revised fair value estimates are INR1,170 for HPCL (34% upside), INR1,206 for

BPCL (26% upside), and INR574 for IOCL (29% upside). Maintain Buy.

Decadal policy inaction corrected; macros to support in medium term



Marred by under-recoveries, oil marketing companies’ (OMCs) profit/market

cap share dropped from a high of 25%/40% in FY04 to 9%/17% in FY15.

We expect this gap to reduce, led by (a) recent auto fuel deregulation, with LPG

and kerosene reforms, and (b) supportive macro environment.

Recent crude price correction is akin to 1986, when OPEC hiked production to

protect market share. Capex cuts by E&P companies have sowed seeds for

future price rise. However, shale oil’s short discovery-to-production period and

improving economics will elongate market share battle, keeping oil prices

subdued in the medium term, in our view.

Auto fuel deregulation is a significant reform, as (a) it gives pricing power to

OMCs, (b) frees OMCs’ working capital and reduces fiscal burden on

government/upstream, and (c) promotes efficiency, with private player entry.

This reform will not only increase and make OMCs’ earnings more predictable,

but also help them tide over extreme inventory and refining margin volatility.

While we expect OMCs’ earnings to grow 140-220% by FY16, their EVs have

moved up just 16-60% in the last two years. They should re-rate in line with

structural positives like (a) pricing power, (b) near monopoly status, (c) steady

volume growth, and (d) strengthening balance sheets and high payouts.

We expect PSU OMC’s to benefit in shift from ‘regulated deregulation’ to

‘deregulation’ era due to its infrastructure reach and scale along with at-par

retail outlet service levels.

OMCs’ profit normalization has entered phase-2. In phase-1, interest cost

reduction had driven profits; in phase-2, higher marketing margins and

operational efficiencies are likely to drive profits. Of the three OMCs, HPCL

provides highest upside led by its high sensitivity to marketing margins, while

BPCL which has multiple triggers, stands out for its superior return ratios.

OMCs’ earnings to increase, become more predictable; re-rating inevitable



OMCs well poised to benefit from likely petroleum market evolution



Harshad Borawake

(HarshadBorawake@MotilalOswal.com); +91 22 3982 5432

Investors are advised to refer through disclosures made at the end of the Research Report.

Motilal Oswal research is available on

www.motilaloswal.com/Institutional-Equities,

Bloomberg, Thomson Reuters, Factset and S&P Capital.

22 July 2015

Oil & Gas | Update

22 July 2015

Oil & Gas | Update

Decadal policy inaction corrected; expect macro support

Under-recoveries to be non-issue; with likely subdued oil, subsidy reforms



Marred by under-recoveries, oil marketing companies’ (OMCs) profit/market cap

share dropped from a high of 25%/40% in FY04 to 9%/17% in FY15.

We expect this gap to reduce, led by (a) recent auto fuel deregulation, with LPG and

kerosene reforms, and (b) supportive macro environment.

Recent crude price correction is akin to 1986, when OPEC hiked production to protect

market share. Capex cuts by E&P companies have sowed seeds for future price rise.

However, shale oil’s short discovery-to-production period and improving economics

will elongate market share battle, keeping oil prices subdued in the medium term, in

our view.

Will Indian Oil companies regain their past glory?



Indian Oil & Gas companies were once a large part of the economy in terms of

their profit contribution and share of overall market capitalization. However,

government policies to control retail petroleum prices resulted in huge under-

recoveries for the economy and impacted the finances of PSU oil companies.



Oil & Gas companies’ share in the Indian market cap fell from ~25% in

FY03-04 to 9% in FY15.



Share of Oil & Companies PAT in our coverage universe (like to like basis)

declined from a high of 26% in FY04 to 9% in FY15.

Exhibit 2: Similar decline observed in market value decline

from ~25% to 9% in FY15

India Mcap (INRt)

Oil & Gas % to Total

Exhibit 1: Share of Oil & Gas profits has declined from a high

of 40% in FY03 to 17% in FY15

Oil & Gas PAT (INRb)

As a % of our coverage universe

265 291 343 346 441 529 469 582 677 789 732 811 638

74 101

Source: CapitalLine, MOSL

Expect OMC’s profits to increase with dwindling under-recoveries



While the crude oil price uncertainty continues, the Indian government has

taken a bold step to deregulate petrol (in June 2010) and diesel (in October

2014) to eliminate under-recoveries. Petroleum product under-recoveries

proved to be a huge burden on the national oil companies and the government,

and also stymied growth of downstream private sector entities.

We believe auto fuel deregulation coupled with shift of LPG and kerosene (in

future) to direct cash transfer will further help to reduce the under-recoveries

problem and help normalize Oil companies’ profitability.

Diesel deregulation coupled with lower oil price has already reduced under-

recoveries by >70% from the peak in FY13 to INR412b in FY16E.

22 July 2015

Oil & Gas | Update



Directionally, we believe that Indian Oil & Gas companies are set for continued

profitable growth backed by normalized profit and underlying volume growth,

supported by the likely uptick in the domestic economy.

Exhibit 3: Under-recoveries, which increased with increasing oil price, now set to decline with auto fuel deregulation and

subdued oil price (INR b)

Petrol

2,000

1,600

1,200

800

400

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16E

Diesel, gasoline

regulated

Gasoline

de-regulated

Diesel

de-regulated

Diesel

Kerosene

LPG

Total

Brent price (USD/bbl) - RHS

120

Source: MoPNG, PPAC, MOSL

DBTL scheme to further reduce subsidy



Along with auto fuel reforms, the government also focused on reducing LPG

subsidy earlier by limiting it to 12 cylinders per year per family and recently by

introducing DBTL (direct benefit transfer of LPG).

Direct transfer of subsidy to the consumers’ bank accounts helps reduce

multiple/fake connections and ensures that subsidy reaches the right consumer.

DBTL has been received very well, with >70% active LPG consumers (117m)

joining the scheme.

The government is also encouraging consumers to voluntarily opt out of subsidy.

We believe it could come up with some criteria to remove consumers who can

afford market-priced LPG to further reduce the subsidy.

All these policy reforms will eventually make under recoveries a non-issue in our

view.

Exhibit 4: In a very short period, >70% domestic LPG customers have joined the DBTL scheme

No. of LPG customers (lakh)

% registered in DBTL - May 2015

81 77 79 84

73 77 78

73 70

70 65

67 69

67 70 69

58 57 56

212 206

167

110104 99

86 85 83 79 74 71

61 60 52

33 28 24 21 20 19 18

6 4 4 4 4 3 2 2 2 2 1 1 1 0

Source: MoPNG, PPAC, MOSL

22 July 2015

Oil & Gas | Update

Recent crude price fall similar to 1986, but will OPEC strategy work again?



In the last 10 months, crude oil price has declined by over 50% without a decline

in demand. Crude price decline of such magnitude was seen only twice in the

last three decades and only once along with economic recession.

Exhibit 6: Such sharp decline was seen only twice in the last

three decades

Brent Crude Price YoY Chg (%)

150

100

(50)

Exhibit 5: Brent crude declined >50% to reach below

USD50/bbl in the recent quarters

Brent Crude Price monthly average (USD/bbl)

150

125

100

Jun-85

Jun-91

Jun-97

Jun-03

Jun-09

Jun-15

(100)

Jun-85

Jun-91

Jun-97

Jun-03

Jun-09

Jun-15

Source: Bloomberg, MOSL



Source: Bloomberg, MOSL



The recent oil price collapse is more comparable to 1986’s. Faced with global oil

price decline, Saudi Arabia played a key role as a swing producer and cut its

production from a peak of 10mmbbl/d in 1980-81 to 2.3mmbbl/d in August

1985. However, as it saw the increasing trend of non-OPEC production (then

again by Gulf of Mexico in the US and North Sea in UK), it decided to abandon its

swing producer role and increased production to maintain its market share. This

resulted in crude price fall of ~58% to USD9.9/bbl by July 1986.

The 1986 oil price fall resulted in a decline in US oil production, as OPEC

increased its production as well as market share.

Exhibit 8: North America production has increased rapidly in

the last five years, again threatening OPEC’s market share

2009-2014 Production change bridge (mmbbl/d)

0.6

5.3

65.4

2.6

81.1

UK Non 2014 OPEC US

OPEC

88.7

0.3

Exhibit 7: OPEC swiftly changes its position from production

cut to increase to protect its market share

1980-1985-1990 Production change bridge (mmbbl/d)

1.5

8.0

10.2

1.2

1980 OPEC US

1.0

2.4

57.5

0.8

2.2

63.0

UK Non 2019

OPEC

UK Non 1985 OPEC US

OPEC

UK Non 1990

OPEC

2009 OPEC US

*US includes USA, Canada and Mexico

Source: BP Statistical Review, IEA, EIA, MOSL

22 July 2015

Oil & Gas | Update

Exhibit 9: OPEC cut its production in pre-1985 demand decline era, but with increasing

US/UK production, it abandoned its swing producer role to maintain market share

Oil Demand Growth (YoY % Chg) - RHS

North-America production share (%)

0.0

-3.0

-6.0

OPEC production share (%)

UK production share (%)

6.0

3.0

Source: BP Statistical Review, MOSL



Capex cuts by E&P companies have already sowed seeds for future price rise.

However, this time around, we believe the OPEC’s market share battle will be

for longer period, keeping oil prices subdued in the interim.



Crude prices have been declining for over six months now; there is no

meaningful impact on US shale oil production yet.



Current situation is different from 1986, as the OPEC fight is against

unconventional US oil production (shale oil/gas), for which lead time for

production is very short and breakeven levels (supported by technological

advances and lowering service equipment charges) are continuously

reducing.



OPEC economics are resilient in terms of crude production costs, but these

countries also have pressures in terms of their breakeven budget prices to

support the economy. This along with the recent Iran deal (will boost

exports by ~1mmbbl/d) will keep the oil market more than well supplied

resulting in subdued price trend

Exhibit 10: Led by declining crude prices, E&P companies have cut their capex plans,

sowing the seeds for the next price rise

-10% -10% -10%

-12% -13%

-15% -16%

-17%

-20%

-26%

-30%

-35%

-37%

Source: Industry, MOSL

22 July 2015

Oil & Gas | Update

Exhibit 11: However, US shale play companies are

continuously reducing breakeven oil prices (WTI Price in

USD/bbl)

2011

160

120

Bakken

Eagle Ford

Permian

Delaware

Permian

Midland

Niobrara

2012

2013

2014

2015

Exhibit 12: Coupled with higher fiscal breakeven for OPEC

countries, OPEC’s market share battle could be elongated,

keeping oil prices subdued in the interim

160

120

Update baseline

for 2015 USD57

GCC

Non-GCC

CCAOE

Source: NASWellData, Rystad Energy

Source: IMF

22 July 2015

Oil & Gas | Update

OMCs’ earnings to increase, become predictable

Last two-year EV improvement lags fundamentals, expect re-rating



Auto fuel deregulation is a significant reform, as (a) it gives pricing power to OMCs, (b)

frees OMCs’ working capital and reduces fiscal burden on government/upstream, and

This reform will not only increase and make OMCs’ earnings more predictable, but

also help them tide over extreme inventory and refining margin volatility.

While we expect OMCs’ earnings to grow 140-220% by FY16, their EVs have moved up

just 13-56% in the last two years. They should re-rate in line with structural positives

like (a) pricing power, (b) near monopoly status, (c) steady volume growth, and (d)

strengthening balance sheets and payouts.

Fuel decontrol gives multiple benefits



In the era of price control, the government kept retail prices of petroleum

products at levels lower than required, resulting in under-recoveries. These

under-recoveries were borne by the government, state-owned upstream

(ONGC, OINL and GAIL) and downstream companies (HPCL, BPCL and IOCL).

Private OMCs (Essar, Shell, RIL) had to shut down their retail outlets, as the

government did not compensate them for their losses.

Post the petrol and diesel deregulation, OMCs are able to frequently change

retail prices in line with international price trends, and thus, pass on product

price changes to consumers. This helps to reduce working capital requirement

and thereby improves profitability.

Exhibit 13: Auto fuel deregulation firmly in place as seen by the frequent price changes v/s the flat price trend for long

periods in the regulated regime

(4)

(8)

May-07

(4)

(8)

May-07

May-08

May-09

May-10

May-11

May-12

May-13

May-14

May-08

May-09 Petrol price change (INR/ltr)

May-10

May-11

May-12

May-13

Petrol price (INR/ltr) - RHS

May-14

Diesel price change (INR/ltr)

Diesel price (INR/ltr) - RHS

May-15

*Deregulation of petrol in June 2010 and of diesel in October 2014

Source: Company,

MOSL

22 July 2015

Oil & Gas | Update



In the controlled price regime, in case of rising international prices, OMCs had to

bear the losses till the time government compensated through subsidy, which

was typically delayed by 3-5 months.

Delayed subsidy led to OMCs using debt to fund working capital requirement,

thus straining their balance sheets as well as income statements. Interest on

under-recovery related debt was not compensated by the government.

Exhibit 14: OMCs’ debt increased rapidly during the regulated price regime…

INR Billion

2,000

1,500

1,000

500

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

443

187

176

486

914

687

949

1,376

1,056

825

1,479 1,476

HPCL

BPCL

IOC

Total

Source: Company, MOSL

Exhibit 15: …as did interest cost, which we now expect to reduce

Interest Burden (INRb)

120

FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E

Source: Company, MOSL

HPCL

BPCL

IOCL

Exhibit 16: Interest coverage ratio (x) – OMCs’ financial position improving

Interest Coverage ratio (x)

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E

Source: Company, MOSL

HPCL

BPCL

IOCL

22 July 2015

Oil & Gas | Update

OMCs’ EVs yet to catch up with fundamentals; room for re-rating



OMCs’ EVs have moved up just 16% for IOC, 34% for HPCL and 60% for BPCL in

the last two years. This compares with 50-70% increase in EBITDA and 140-220%

increase in PAT over FY13-16E.

Our analysis indicates that the increase in the market cap over the last two years

is largely similar to reduction in the debt levels for OMCs (even that has not

happened in IOCL) and was not accompanied with valuation increase.

Improved quality / predictability / sustainability of earnings should result in

higher valuation multiples for OMCs and current levels provide ample

opportunity for the same, in our view.

Exhibit 18: Structural improvement in fundamentals should

lead to re-rating in OMCs

HPCL

Net Debt

EV (INRb)

456

359

FY13

526

105

421

FY14

494

166

328

FY15

Net Debt

EV (INRb)

554

210

222

123

FY14

642

340

178

123

FY15

783

534

125

123

Current

593

278

315

Current

M Cap

1 Yr Fwd EV/EBITDA (x)

Exhibit 17: OMCs’ EVs are up only 16-60% in the last 2 years

v/s 50-70% rise in EBITDA and 140-220% rise in PAT

HPCL

200

150

100

FY12

BPCL

400

300

200

100

FY12

IOCL

200

150

100

FY12

FY13

FY14

FY15

FY16E

FY13

FY14

FY15

FY16E

FY13

FY14

EBITDA

FY15

FY16E

PAT

EBITDA

PAT

449

106

344

FY12

BPCL

E&P Value

M Cap (excl. E&P)

503

150

229

123

FY13

Net Debt

EV (INRb)

1,364

684

681

FY13

1,395

684

711

FY14

453

117

214

123

FY12

EBITDA

PAT

IOCL

M Cap

1 Yr Fwd EV/EBITDA (x)

1,445

826

620

FY15

1,548

1,032

516

Current

1,331

688

643

FY12

22 July 2015

Oil & Gas | Update

Poised to benefit from petroleum market evolution

After interest cost reduction, marketing margins to drive profitability

growth



We expect PSU OMC’s to benefit in the shift from ‘regulated deregulation’ to

‘deregulation’ era due to its infra reach and scale along with at-par outlet services.

OMCs’ profit normalization has entered phase-2. In phase-1, interest cost reduction

had driven profits; in phase-2, operational efficiencies are likely to drive profits.

Of the three OMCs, HPCL (refer

report dated July 1, 2015)

provides highest upside led

by its high sensitivity to marketing margins, while BPCL (refer

report dated June 22,

2015)

which has multiple triggers, stands out for its superior return ratios.

Indian petroleum retail market is on the cusp of evolution led by recent diesel de-

regulation. It has crossed the regulated era and is in the midst of “regulated de-

regulation” era which typically is accompanied with the private player entry.

Indian fuel retailing has already evolved from a pure fuel dispensing station to a

multiservice fuel station in pockets, but still has to go a long way to adapt the new

age business model on a mass scale.

While, availability of the last mile nation-wide infrastructure is an advantage for PSU

OMC’s, nevertheless they too will have to adopt new strategies to improve

profitability and protect/grow their market share. We note some of the likely

evolutionary stages in exhibit 19, depicting the different horizons in the evolution of

Indian petroleum market.

Exhibit 19: Evolution of Indian petroleum retail market

Source: MOSL

22 July 2015

Oil & Gas | Update

In phase-2 of profit normalization



We had divided OMCs’ earnings improvement process into two phases (refer

our March 2013 report “Landmark

reforms – Oil PSUs to benefit”).

Phase-1

included financial benefit from reduction of interest cost, led by lowering of

working capital related loans (used to fund under-recoveries till the government

compensated), which we believe is near completion.

Over the last few years, government subsidy receivables constituted 30-40% of

the OMCs’ debt. With diesel deregulation, this would reduce to a minimal level,

leading to reduction in debt and interest cost.

Exhibit 20: Receivables from the government used to form 30-40% of the OMCs’ debt

INR b

18%

Receivables from government

29%

39%

22%

242

11%

267

19%

Debt

30%

Gross debt

26%

29%

13%

328

473

Receivable a % of total

19%

578

26%

800

27%

868

23%

889

228

14%

16%

495

213

250

298

325

319

252

302

329

FY09 FY10 FY11 FY12 FY13 FY14

HPCL

FY09 FY10 FY11 FY12 FY13 FY14

BPCL

FY09 FY10 FY11 FY12 FY13 FY14

IOCL

Source: Company, MOSL

Exhibit 21: OMCs’ balance sheets to improve; net debt to reduce by >50% (INRb)

HPCL

2,000

1,500

1,000

500

FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E

Source: Company, MOSL

443

187

176

486

914

687

949

1,376

1,056

825

757

688

1,479 1,476

BPCL

IOC

Total

22 July 2015

Oil & Gas | Update

Exhibit 22: OMCs’ net debt to equity to reduce significantly (x)

Net Debt / Equity (x))

2.6

2.0

1.3

0.7

0.0

FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E

Source: Company, MOSL



HPCL

BPCL

IOC



Phase-2 is difficult but more rewarding, as it improves earnings quality and also

imparts more sustainability.

In phase-2, we expect earnings to improve through higher marketing margins,

but this would also be challenging, as the OMCs would have to compete with

private players that are attempting to re-enter.

Unlike the previous deregulation period (2004-2006), we expect OMCs to have a

smoother ride in competing with private players.



In 2004-2006, OMCs were ill-prepared to face private competition.



However, we believe it was an eye opener for the OMCs that later

responded by improving on all key parameters – service, quality, look & feel

of outlets, and reach. (For more details, please refer to the section

‘Private

entry unlikely to dent OMCs’ volumes’

in our report,

Marketing freedom: A

win-win for all; OMCs to turn into structural investment plays.

On the marketing margin front, in 4QFY15, OMCs showed the flexibility to

balance earnings in the face of inventory movements impacting profitability.

OMCs had increased auto fuel marketing margins from the regulated

INR1.4/liter to INR3/liter.

While the current level of margins is ~INR1.8/liter, we expect them to improve

gradually over the coming quarters to INR2.25-2.5/liter.

Expect OMCs’ marketing margins to move up

The next big earnings jump for OMCs would come from likely higher marketing

margin in diesel. We believe OMCs could at least earn additional marketing margin

of INR0.5-1/liter. Even if private players take market share as high as 15%, OMCs can

report 3-4% volume growth.

How much marketing margins did OMCs earn in regulated scenario?



The marketing margin component for OMCs’ marketing sales was fixed by the

government in 2006 (it was INR1.4/liter in 2014 for diesel).

Despite the cost increases of 8-10%, OMCs got only ~4% annual escalation. This

led to a severe reduction in the marketing division’s profitability.

22 July 2015

Oil & Gas | Update

What is the global trend?



Global comparison shows that the current marketing margin in diesel in India at

INR1.4/liter is ~60% below global average.

Our view



In the current scenario of deregulation, we expect OMCs’ marketing division

profitability to increase meaningfully.

Who will benefit the most?



HPCL being the highest leveraged to marketing volumes (standalone

marketing/refining ratio of 2x), we estimate an EPS increase of INR15.5 for

INR0.5/liter increase in diesel marketing margins, followed by BPCL and IOCL.

Exhibit 23: Global diesel marketing margins are well above

India’s regulated level margins (INR/liter)

4.80

3.00

1.40

1.90

3.01

4.50

2.83

1.77

3.49 3.40

Exhibit 24: HPCL has the highest marketing / refining ratio

among OMCs

Marketing

to refining

volume

ratio (x)

HPCL

BPCL

IOCL

1.9

2.0

1.9

1.8

1.5

1.3

1.6

1.4

1.7

1.4

1.3

1.5

1.3

1.2

1.4

1.2

1.4

1.3

1.4

1.5 1.5

1.4

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

Source: Company, MOSL

HPCL has the highest sensitivity to marketing margins among OMCs



Diesel deregulation benefitted OMCs in terms of lower interest cost (WC

reduction). The next leg of earnings increase will be from higher marketing

margins (similar to petrol).

Diesel gross marketing margins at INR1.4/liter (including cost of INR0.8-0.9/liter)

in India are INR2-3/liter lower than global averages.

Further, given the economics of private players (new marginal players) and

global margin trend, earning additional INR0.5-1/liter marketing margin

consistently on diesel should be possible for state-owned OMCs.

We model additional INR0.5/0.6/liter in our estimates for FY16/FY17.

22 July 2015

Oil & Gas | Update

Exhibit 25: Marketing margin increase to significantly boost OMCs’ earnings

Under recoveries (INRb)

1,033

461

Brent Crude Price (USD/bbl)

114

111

108

1,610

1,399

1,385

780

HPCL

BPCL

EPS (INR)

FY04

201

400

494

773

723

IOCL

412

0.0

412

0.5

412

1.0

105

1.0

412

131

1.5

101

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16E

0.5

RoE (INR)

HPCL

BPCL

IOCL

0.0

1.5

0.0

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

0.5

1.0

1.5

FY16E

Addl. mktg margin (INR/ltr)

Source: Company, MOSL

Private competition fears unfounded; OMCs better prepared



We also do not see any threat from private players on marketing margins, as

apart from Central-Western India players (RIL, Essar) private players do not have

infrastructural reach to transport petroleum products economically.

We believe that private players are unlikely to dent OMCs’ volumes as:



Pump economics have turned unfavorable unlike during 2004-07



OMCs’ control over logistics handicaps private players to compete beyond the

proximity of their refineries



OMCs’ service levels have improved considerably, as they have



addressed adulteration issues to a greater extent



increased network and reach



tied up with high volume fleet operators

Why we think OMCs will not suffer like telecom, airlines



Entry of private players into a sector where PSUs had monopoly has led to a

large business loss for PSU companies. Telecom and Airlines are cases in point.



It could be argued that state-owned OMCs will meet similar fate. However, we

believe this is unlikely.

22 July 2015

Oil & Gas | Update

Exhibit 26: Key dissimilarities between Telecom/Airlines and Petroleum Marketing before private player entry

Key parameters

Operational Efficiency

Service quality

Telecom / Airlines



Monopoly, hence no comparison to measure

operational efficiency



Petroleum Marketing



Competition within PSU OMCs in place, hence

operational efficiencies achieved



In telecom, clearly customers had to wait long to

get new phone connections, service levels were

very poor

PSU OMCs learned lesson in a hard way during the

previous de-regulation period and has upped their

service levels at par with private or global players

As the petroleum product has to be physically

delivered, any technology change will not replace

the need for the physical infrastructure.

Replication of the PSU infrastructure will be

difficult to justify at current costs and scale for

private players, unless they take a 10-15 year

business view

Source: MOSL

Infrastructure



Large asset was an advantage in telecom, but



advent of wireless technology made this advantage

irrelevant

Equal access to airport facilities, availability of

planes on lease gave level playing field for private

airlines



In our view, eventual winners in the petroleum retail business will be players who



can modernize (value/service to customers, non-fuel retail),



have scale (reach to cater fleet operators),



have multi-fuel outlets, and



can be efficient (profitability focus, real-time monitoring).

Even in the worst case scenario,

we expect OMCs to report 3-4% volume CAGR,

factoring 10% market share for private players.

Exhibit 27: Even at 10% private market share, expect OMCs’ volume CAGR at 3-4%

FY04 FY05 FY06 FY07 FY08 FY09

Retail auto fuel sales (mmt) - excludes direct diesel sale

HPCL

BPCL

IOCL

Private

Total

Retail auto fuel sales market share (%)

HPCL

BPCL

IOCL

Private

Total

100

FY10

100

FY11

100

FY12

100

FY13

100

FY14

100

FY15

100

FY16

100

FY17

FY14-

FY18 CAGR

3.4%

3.6%

3.1%

6.0%

100

Source: Company, MOSL

22 July 2015

Oil & Gas | Update

Exhibit 28: Similar to last deregulation period, our market share analysis factors higher

throughput for private players v/s PSU OMCs

In KLPM

400

300

200

100

FY04

FY06

FY08

FY10

FY12

FY14

FY16

FY18

187 171

148 137 140 147 155 159 163 163 158 156 159 162 165

Industry Average

HPCL

BPCL

IOCL

Private

Source: Company, MOSL

Similarities / differences in three state-owned OMCs



While macro drivers are similar for all the three OMCs, each one is unique in

terms of its operational parameters as well as earnings mix.



HPCL:

Of the three OMCs, HPCL is the most levered to marketing margin

change, as it markets ~2x its refining capacity.



BPCL:

On the operational front, BPCL is balanced between HPCL and IOCL in

terms of marketing to refining capacity. However, it stands out for its

superior capital allocation record and operationally efficient assets,

resulting into higher return ratios.



IOCL:

IOCL has the largest refining capacity and also markets highest

product volume. Its earnings are well diversified, with meaningful income

from each segment – refining, marketing and pipelines. Hence, it has the

least sensitivity to marketing or refining margins.

Exhibit 29: EBITDA break-up in %: IOCL is well diversified of the three OMCs

Marketing

Petchem

Pipelines

Refining

HPCL

BPCL

IOCL

*Average of FY11-FY15 EBITDA, FY11-FY14 for IOCL to normalize refining share which was impacted by

huge inventory loss in FY15

Source: Company, MOSL

22 July 2015

Oil & Gas | Update

Exhibit 30: OMCs – relative positioning in the key operating parameters

*Includes Paradeep in IOCL refining capacity

Source: Company, MOSL

Exhibit 31: BPCL has highest return ratios among the three OMCs

RoE (%)

FY10

FY11

FY12

FY13

FY14

FY15

HPCL

BPCL

IOCL

Source: Company, MOSL

Exhibit 32: DuPont analysis: Higher profitability led by superior operational performance helps BPCL to report higher RoE

PAT

Margin (%)

5.0

3.8

2.5

1.3

0.0

FY10 FY11 FY12 FY13 FY14 FY15

HPCL

BPCL

IOCL

Linear (BPCL)

Total asset

turnover (x)

5.0

4.3

3.5

2.8

2.0

FY10 FY11 FY12 FY13 FY14 FY15

HPCL

BPCL

IOCL

Equity

Multiplier (x)

4.0

3.5

3.0

2.5

2.0

FY10 FY11 FY12 FY13 FY14 FY15

Source: Company, MOSL

HPCL

BPCL

IOCL

22 July 2015

Oil & Gas | Update

Exhibit 33: Comparing GRM performance – trend in-line for

three OMCs, BPCL stands out in recent years (USD/bbl)

GRM (USD/bbl)

6.0

4.5

3.0

1.5

0.0

FY10

FY11

FY12

FY13

FY14

FY15

HPCL

BPCL

IOCL

Exhibit 34: Improving distillate yield helps to counter

inventory losses

Distillate Yield (%)

FY10

FY11

FY12

FY13

FY14

FY15

HPCL

BPCL

IOCL

Source: Company, MOSL

22 July 2015

Oil & Gas | Update

Valuation and view

Upgrading valuation multiples, target prices



We believe ongoing reforms have the potential to transform OMCs into structural

investment plays, led by (a) higher earnings predictability, and (b) increase in

profitability, leading to higher RoEs.

Maintain Buy: Our revised fair value estimates are INR1,170 for HPCL (34% upside),

INR1,206 for BPCL (26% upside), and INR574 for IOCL (29% upside).



OMCs profit normalization delayed for a decade:

OMC’s deregulation and in

turn their profit normalization had been derailed for a decade after an earlier

brief de-regulation period in 2004-06. However, this time around we believe

government will stay put with its deregulation decision given the hard lessons of

financial stress of last decade. Increased excise duties offer some flexibility to

moderate prices in event of spike in oil prices, but huge and growing India

consumption volumes will make it practically impossible to again revisit the

price control model.

Marketing division to drive profitability:

Under the controlled price regime,

while the refining profitability was in-sync with the international product price

trend, marketing division profitability was controlled. Post de-regulation, we

expect marketing division profitability to grow rapidly, hence should also

command a higher valuation.

Widening Moat:

OMCs’ economic moat is widening, led by (1) scope for

meaningful increase in marketing margins and profitability, (2) slower ramp-up

by private marketers, (3) high volume growth, aided by expected GDP boost,

and (4) improving balance sheet with increasing cash flow.

Pure play marketing companies trade at higher valuations:



Pure play petroleum marketing companies - US based CST Brands (CST US;

M Cap: USD3b) and New Zealand based Z Energy (ZEL NZ; M Cap: USD1.5b)

trade (1 year forward basis) at 11x EV/EBITDA and 22x P/E on one year

forward basis.



These valuations (in-line with the underlying business dynamics) are more

similar to consumer business than refining or oil & gas businesses.

Upgrading valuation multiples and target prices:

We now value OMC’s on

EV/EBITDA basis and assign different valuation multiple to refining and

marketing. Our target EV/EBITDA multiple stands at 5.5-6x for refining and 8x

for marketing (v/s 6x earlier for overall EBITDA).

Our revised fair value estimates are INR1,170 for HPCL (34% upside), INR1,206

for BPCL (26% upside), and INR574 for IOCL (29% upside).

Exhibit 35: OMCs - Earnings and valuation summary

M Cap

(INR)

Var.

EPS (INR)

P/E (x)

USDb CMP TP TP (%) FY15 FY16E FY17E

FY15 FY16E FY17E

HPCL

4.7 875 1,170

10.9 10.2

9.3

BPCL*

10.9 960 1,206

12.3 10.8 10.1

IOCL

16.9 445

574

33.3 10.0

8.7

*P/B, P/E adj. for E&P valueof INR142/sh; Dividend yield on FY16E basis

FY15

1.9

2.3

1.5

P/B (x)

FY16E FY17E

1.7

1.5

2.0

1.7

1.4

1.2

RoE (%)

Dvd

FY15 FY16E FY17E

Yld %

17.6 17.2 17.1

3.0

23.0 22.7 21.3

2.6

4.7 14.5 14.8

3.1

Source: Company, MOSL

22 July 2015

Oil & Gas | Update

Exhibit 36: OMC’s Key Assumptions – We model marketing margins at INR1.9/ltr in FY16 and INR2/ltr in FY17

FY09

GRM (USD/bbl)

HPCL

BPCL

IOCL

Reuters Singapore

Marketing volume (mmt)

HPCL

BPCL

IOCL

5.2

5.4

3.7

5.8

25.4

27.1

66.8

FY10

3.0

4.5

3.6

26.3

27.7

69.8

FY11

4.5

5.9

5.2

27.0

29.1

72.9

FY12

5.2

3.2

3.6

8.2

29.5

31.1

75.7

FY13

2.1

5.0

2.2

7.7

30.3

33.3

76.2

FY14

3.4

4.3

4.2

5.6

31.0

34.0

75.5

FY15

2.2

3.6

0.3

6.4

31.9

34.5

76.5

FY16

5.0

5.8

5.3

7.0

FY17

4.5

5.1

5.0

7.0

FY18

4.8

6.4

5.7

7.0

32.8

33.8

34.8

35.8

36.9

38.2

79.3

81.0

83.0

Source: Company, MOSL

Exhibit 37: HPCL valuation summary

FY17 EBITDA Multiple, x

Refining

5.5

Marketing&others

8.0

Pipeline

7.0

Less: Net Debt

Equity Value

Bhatinda refinery

INRb

111

334

497

146

351

INR/sh

326

985

154

1,466

430

1,036

Investments

Bhatinda Refinery

Oil India

MRPL

Total

INRb INR/sh

24.0

71 1x equity investment,

post 30% discount

4.5

13Post 30% discount

16.9

50Post 30% discount

45.4

134

Investment value

Fair value

CMP

% upside/downside

396

1,170

875

34%

HPCL: Fair value sensitivity to GRM (USD/bbl) and marketing margin (INR/KL)

Marketing Margins (INR/KL)

1,400

1,900

2,400

2,900

3,400

3.0

564

905

1,246

1,587

1,928

4.0

695

1,036

1,377

1,718

2,059

5.0

826

1,166

1,507

1,848

2,189

6.0

956

1,297

1,638

1,979

2,320

7.0

1,087

1,428

1,769

2,110

2,451

8.0

1,217

1,558

1,899

2,240

2,581

3,900

2,269

2,400

2,530

2,661

2,792

2,922

Source: MOSL

Exhibit 38: HPCL – 1 year forward P/E (x) chart

9.3

8.4

9.5

9.9

P/E (x)

5 Yrs Avg(x)

15 Yrs Avg(x)

10 Yrs Avg(x)

Exhibit 39:

HPCL – 1 year forward EV/EBITDA (x) chart

EV/EBDITA(x)

9.1

7.9

2.3

21.3

Peak(x)

Avg(x)

Min(x)

Source: Company, MOSL

22 July 2015

Oil & Gas | Update

Exhibit 40: BPCL valuation summary

Refining

Marketing & others

Pipeline

Less: Net Debt

Equity Value

Investment value

Fair value

CMP

% upside/(downside)

FY17 EBITDA Multiplex

6.0

8.0

7.0

INRb

305

452

790

691

180

871

INR/sh

422

625

1,092

136

956

249

1,205

952

27%

Investments

Oil India

Petronet LNG

Indraprastha Gas

Treasury Shares

E&P Value

Mozambique

Brazil (Wahoo)

Brazil (SEAL)

Total

INRb INR/sh Details

7 Post 25% discount

19 Post 25% discount

14 Post 25% discount

67 Post 25% discount

180

132 BPCL has 10% stake

10 BPCL has 12.5%

stake

5 successful wells,

await reserve est.

249

BPCL: Fair value sensitivity to GRM (USD/bbl) and marketing margin (INR/KL)

Marketing Margins (INR/KL)

1,400

1,900

2,400

2,900

3,400

3.0

805

976

1,148

1,319

1,490

4.0

902

1,074

1,245

1,416

1,587

5.0

1,000

1,171

1,342

1,513

1,684

6.0

1,097

1,268

1,439

1,610

1,782

7.0

1,194

1,365

1,536

1,708

1,879

8.0

1,291

1,462

1,634

1,805

1,976

3,900

1,661

1,758

1,856

1,953

2,050

2,147

Exhibit 41: BPCL 1 year forward P/E (x) chart

11.7

12.3

10.4

12.3

P/E (x)

5 Yrs Avg(x)

15 Yrs Avg(x)

10 Yrs Avg(x)

Exhibit 42: BPCL - 1 year forward EV/EBITDA (x) chart

6.1

1.7

EV/EBDITA(x)

Peak(x)

Avg(x)

Min(x)

11.1

8.2

Source: Company, MOSL

22 July 2015

Oil & Gas | Update

Exhibit 43: IOCL valuation summary

FY17 EBITDA Multiple x

Refining

5.5

Marketing & others

8.0

Petchem

5.5

Pipeline

7.0

Less: Net Debt

Equity Value

Investment value

Fair value

CMP

% upside/downside

INRb

502

639

155

296

1,592

409

1,183

210

1,393

INR/sh

207

263

122

656

168

487

574

438

31%

Investments

CPCL

Gail (India)

ONGC

Petronet LNG

Oil India

Treasury Shares

Treasury Sh (BRPL)

Treasury Sh (IBP)

Total

INRb INR/sh

4 Post 25% discount

148

61 Post 25% discount

6 Post 25% discount

4 Post 25% discount

210

Post 25% discount

IOCL: Fair value sensitivity to GRM (USD/bbl) and marketing margin (INR/KL)

Marketing Margins (INR/KL)

1,400

1,900

2,400

2,900

3,400

3.0

345

421

496

572

648

4.0

414

490

565

641

717

5.0

483

558

634

710

786

6.0

552

627

703

779

855

7.0

621

696

772

848

923

8.0

689

765

841

917

992

3,900

724

792

861

930

999

1,068

Source: MOSL

Exhibit 44: IOCL - 1 year forward P/E (x) chart

10.5

11.5

8.9

9.4

P/E (x)

5 Yrs Avg(x)

15 Yrs Avg(x)

10 Yrs Avg(x)

Exhibit 45: IOCL – 1 year forward EV/EBITDA (x) chart

EV/EBDITA(x)

7.3

2.0

Peak(x)

Avg(x)

13.3

7.1

Min(x)

Source: Company, MOSL

22 July 2015

Oil & Gas | Update

BPCL: Financials and valuations

Income Statement (Consolidated)

Y/E March

Net Sales

Change (%)

Finished Gds Purchase

RM & Other exp

Other oper. expenses

EBITDA

% of Net Sales

Depreciation

Interest

Other Income

PBT

Tax

Rate (%)

Minority Interest

PAT

Adj. PAT

Change (%)

2012

2,121,396

38.1

918,786

1,030,487

123,996

48,127

2.3

24,108

22,591

14,567

15,994

7,482

46.8

705

7,808

-52.2

2013

2,421,810

14.2

1,023,115

1,191,085

140,888

66,722

2.8

24,627

25,183

15,290

32,202

12,841

39.9

553

18,808

140.9

2014

2,644,066

9.2

1,070,857

1,320,642

158,977

93,590

3.5

26,109

19,821

13,998

61,657

21,127

34.3

1,423

39,107

107.9

2015

2,424,188

-8.3

938,728

1,153,180

236,301

95,978

4.0

30,267

11,805

22,998

76,905

26,085

33.9

2,754

48,066

22.9

2016E

2,458,958

1.4

889,900

1,329,795

135,967

103,296

4.2

28,931

10,218

22,587

86,734

29,317

33.8

2,755

54,662

13.7

2017E

2,445,043

-0.6

979,238

1,214,094

139,722

111,989

4.6

33,318

9,991

23,900

92,581

31,059

33.5

2,750

58,772

7.5

(INR Million)

2018E

2,713,310

11.0

979,238

1,479,173

99,971

154,928

5.7

39,146

9,630

24,557

130,709

41,737

31.9

2,745

86,227

46.7

Balance Sheet

Y/E March

Share Capital

Reserves

Net Worth

Equity

Reserves

Minority interest

Loans

Deferred Tax

Capital Employed

Gross Fixed Assets

Less: Depreciation

Net Fixed Assets

Capital WIP

Investments

Intangibles

Curr. Assets, L & Adv.

Inventory

Debtors

Cash & Bank Balance

Loans & advances

Other Current Assets

Current Liab. & Prov.

Liabilities

Provisions

Net Current Assets

Less: Miscellaneous exp.

Application of Funds

E: MOSL Estimates

2012

7,231

151,568

158,799

2013

7,231

160,525

167,755

2014

7,231

187,032

194,263

2015

7,231

217,248

224,478

2016E

7,231

250,761

257,992

(INR Million)

2017E

7,231

287,538

294,769

2018E

7,231

343,310

350,541

10,351

301,531

16,778

487,459

416,676

174,350

242,326

45,342

78,906

7,556

210,971

52,010

13,263

29,471

98,290

271,434

19,243

113,329

487,459

10,766

328,604

16,059

523,184

437,803

198,173

239,630

74,633

74,698

7,584

199,567

43,551

28,498

36,096

91,400

240,795

31,678

126,639

523,184

11,603

327,985

12,511

546,362

490,974

222,858

268,115

93,717

69,853

7,684

231,695

45,437

23,113

37,070

110,918

299,307

41,934

106,992

546,362

14,358

231,757

12,511

483,104

537,051

253,125

283,926

105,066

90,765

7,684

156,617

29,384

71,420

43,245

64,201

318,879

50,326

-4,338

483,104

17,112

246,934

13,185

535,222

574,216

282,056

292,160

170,066

91,765

7,684

179,822

29,547

91,120

43,245

24,201

343,819

50,569

-26,453

535,222

19,862

244,045

14,810

573,487

701,073

315,374

385,698

143,066

92,765

7,684

172,354

28,771

63,095

43,245

24,201

336,646

50,746

-55,727

573,487

22,607

246,165

17,380

636,693

791,922

354,520

437,402

114,066

93,765

7,684

188,913

31,261

114,834

43,245

24,201

367,746

50,933

-16,224

636,693

22 July 2015

Oil & Gas | Update

BPCL: Financials and valuations

Ratios

Y/E March

Basic (INR)

EPS

Cash EPS

Book Value

Dividend

Payout (incl. Div. Tax.)*

Valuation (x)

P/E

Cash P/E

EV / EBITDA

EV / Sales

Price / Book Value

Dividend Yield (%)

Profitability Ratios (%)

RoE

RoCE

Turnover Ratios

Debtors (No. of Days)

Asset Turnover (x)

Leverage Ratio

Debt / Equity (x)

*Based on standalone

2012

10.8

44.1

219.6

5.5

35.5

2013

26.0

60.1

232.0

11.0

35.2

2014

54.1

90.2

268.7

17.0

35.4

2015

66.5

108.3

310.4

21.1

35.1

2016E

75.6

115.6

356.8

25.0

38.7

2017E

81.3

127.4

407.7

26.0

37.4

2018E

119.2

173.4

484.8

36.0

35.3

88.2

21.6

20.6

0.5

4.3

0.6

5.0

8.4

36.6

15.8

15.1

0.4

4.1

1.2

11.5

11.4

17.6

10.6

10.7

0.4

3.5

1.8

21.6

15.2

14.3

8.8

9.0

0.4

3.1

2.2

23.0

17.2

12.6

8.2

8.3

0.3

2.7

2.6

22.7

19.0

11.7

7.5

7.9

0.4

2.3

2.7

21.3

18.5

26.7

23.2

8.0

5.5

5.4

0.3

2.0

3.8

7.0

5.6

7.2

5.7

6.1

5.7

5.6

4.7

4.4

3.8

4.0

3.6

1.9

2.0

1.7

1.0

0.8

0.7

Cash Flow Statement

Y/E March

OP/(Loss) before Tax

Depreciation

Interest Paid

Direct Taxes Paid

Other operating items

(Inc)/Dec in Wkg. Capital

CF from Op. Activity

(Inc)/Dec in FA & CWIP

Free Cash Flow

(Pur)/Sale of Investments

CF from Inv. Activity

Issue of Shares

Net Inc / (Dec) in Debt

Interest paid

Dividends Paid

Other Fi. Activities

CF from Fin. Activity

Inc / ( Dec) in Cash

Net Cash/(Debt) adj. for ST borrowing

Closing Balance

E: MOSL Estimates

2012

15,994

24,108

22,280

-6,881

3,946

-40,380

19,067

-42,175

-23,108

19,417

-22,759

-14,852

-21,940

-6,502

-493

-43,787

-47,479

60,747

13,269

2013

32,203

24,627

24,737

-9,156

-1,901

-11,273

59,237

-73,776

-14,539

37,763

-36,013

42,042

-25,538

-5,028

-19,936

-8,460

14,764

13,734

28,498

2014

61,166

26,109

18,031

-25,665

11,236

4,988

95,865

-72,376

23,489

3,570

-68,806

-8,236

-19,556

-9,734

165

-37,333

-10,274

28,498

23,113

2015

76,905

30,267

11,805

-26,085

159,636

252,528

-57,427

195,101

-20,912

-78,338

-96,229

-11,805

-17,850

-125,883

48,306

23,113

71,420

2016E

86,734

28,931

10,218

-28,643

41,815

139,055

-102,165

36,890

-1,000

-103,165

15,177

-10,218

-21,149

-16,190

19,700

71,420

91,120

(INR Million)

2017E

92,581

33,318

9,991

-29,433

1,249

107,706

-99,856

7,849

-1,000

-100,856

-2,888

-9,991

-21,995

-34,874

-28,025

91,120

63,095

2018E

130,709

39,146

9,630

-39,168

12,236

152,554

-61,850

90,704

-1,000

27,855

2,120

-9,630

-30,455

-37,965

142,444

63,095

114,834

22 July 2015

Oil & Gas | Update

HPCL: Financials and valuations

Income Statement

Y/E March

Net Sales

Finished Goods

Raw Materials Cons

Employee cost

Other Exp

EBITDA

% of Net Sales

Depreciation

Interest

Other Income

Extraordinary Items (net)

PBT

Tax

Total Rate (%)

PAT

Adjusted PAT

% of Net Sales

Change (%)

2012

1,781,392

1,093,707

561,189

15,831

76,583

34,082

1.9

17,129

16,977

12,222

-5

12,192

3,077

25.2

9,115

0.5

-40.8

2013

2,065,293

1,281,786

639,921

25,256

78,907

39,424

1.9

19,315

18,377

12,300

714

14,746

5,699

38.6

9,047

0.4

-0.7

2014

2,231,454

1,451,380

613,881

20,303

93,809

52,081

2.3

21,884

15,046

11,004

26,155

8,817

33.7

17,338

0.8

91.6

2015

2,063,804

1,292,784

599,079

24,147

93,618

54,176

2.6

19,712

7,066

14,142

41,541

14,209

34.2

27,333

1.3

57.6

2016E

1,723,964

1,023,427

578,468

25,837

36,322

59,910

3.5

22,284

5,628

11,356

43,353

14,401

33.2

28,952

1.7

5.9

2017E

1,861,369

1,100,851

627,747

27,645

39,089

66,036

3.5

24,711

5,117

11,337

47,546

15,794

33.2

31,753

1.7

9.7

(INR Million)

2018E

1,877,331

1,100,851

627,747

29,581

41,821

77,331

4.1

26,668

5,117

13,473

59,020

19,605

33.2

39,415

2.1

24.1

(INR Million)

2018E

3,390

218,439

221,829

170,556

56,028

448,413

607,624

263,914

343,710

8,000

112,415

300,652

124,667

43,168

60,951

67,434

4,432

318,885

284,399

34,487

-18,233

445,891

Balance Sheet

Y/E March

Share Capital

Reserves

Net Worth

Loans

Deferred Tax

Capital Employed

Gross Fixed Assets

Less: Depreciation

Net Fixed Assets

Capital WIP

Investments

Curr. Assets, L & Adv.

Inventory

Debtors

Cash & Bank Balance

Loans & Advances

Other Current Assets

Current Liab. & Prov.

Liabilities

Provisions

Net Current Assets

Application of Funds

E:MOSL Estimates

2012

3,390

127,835

131,225

298,312

30,853

460,390

334,590

126,094

208,496

44,445

103,705

354,427

194,545

35,652

2,264

116,484

5,483

250,683

230,847

19,836

103,744

460,390

2013

3,390

133,874

137,264

324,583

35,984

497,830

370,062

144,575

225,487

51,729

106,269

378,962

164,387

49,350

1,471

160,008

3,745

264,617

241,622

22,995

114,345

497,830

2014

3,390

146,732

150,122

319,301

39,084

508,506

424,668

165,545

259,122

45,856

108,598

362,204

187,754

54,660

347

114,693

4,750

267,275

243,978

23,296

94,930

508,506

2015

3,390

156,831

160,221

170,556

41,036

371,813

469,769

190,252

279,517

45,856

112,415

237,719

129,723

36,031

171

67,364

4,432

303,693

273,903

29,790

-65,974

371,813

2016E

3,390

172,258

175,649

170,556

45,371

391,576

520,624

212,536

308,088

30,000

112,415

246,786

116,439

39,642

18,840

67,434

4,432

308,234

276,955

31,279

-61,448

389,056

2017E

3,390

192,866

196,256

170,556

50,126

416,938

577,624

237,246

340,378

8,000

112,415

270,867

124,483

42,801

31,717

67,434

4,432

317,243

284,399

32,844

-46,376

414,416

22 July 2015

Oil & Gas | Update

HPCL: Financials and valuations

Ratios

Y/E March

Basic (INR)

EPS

Cash EPS

Book Value

DPS

Payout (incl. Div. Tax.)

Valuation (x)

P/E

Cash P/E

EV / EBITDA

EV / Sales

Price / Book Value

Dividend Yield (%)

Profitability Ratios (%)

RoE

RoCE

Turnover Ratios

Debtors (No. of Days)

Asset Turnover (x)

Leverage Ratio

Debt / Equity (x)

2012

26.9

127.4

387.1

8.5

37.0

2013

26.7

143.0

404.9

8.5

37.3

2014

51.1

204.8

442.8

15.5

35.5

2015

80.6

240.4

472.6

24.5

35.6

2016E

85.4

262.1

518.1

26.0

35.6

2017E

93.7

288.5

578.9

28.1

35.1

2018E

116.3

344.4

654.3

34.9

35.1

32.5

6.9

15.3

0.3

2.3

1.0

32.8

6.1

13.9

0.3

2.2

1.0

17.1

4.3

10.5

0.2

2.0

1.8

10.9

3.6

7.3

0.2

1.9

2.8

10.2

3.3

6.4

0.2

1.7

3.0

9.3

3.0

5.7

0.2

1.5

3.2

7.5

2.5

4.5

0.2

1.3

4.0

7.1

6.7

6.8

12.1

8.2

17.6

11.0

17.2

12.8

17.1

13.0

18.9

14.8

6.4

5.6

7.5

5.9

8.5

5.6

8.0

4.6

8.0

3.5

8.1

3.4

8.4

3.2

2.3

2.4

2.1

1.1

1.0

0.9

0.8

Cash Flow Statement

Y/E March

OP/(Loss) before Tax

Depreciation

Other op

Interest Paid

Direct Taxes Paid

(Inc)/Dec in Wkg. Capital

CF from Op. Activity

(Inc)/Dec in FA & CWIP

Free Cash Flow

(Pur)/Sale of Investments

Inc from Invst

CF from Inv. Activity

Inc / (Dec) in Debt

Interest paid & other Inv

Dividends Paid

CF from Fin. Activity

Inc / ( Dec) in Cash

Add: Op. Balance

Bank Balance Adj.

Closing Balance

E:MOSL Estimates

2012

12,192

17,129

-5,407

21,392

-2,715

-27,301

15,291

-41,359

-26,068

6,378

6,345

-28,636

37,919

-14,836

-5,509

17,574

4,229

800

-2,766

2,264

2013

14,746

19,344

-10,771

20,193

-1,072

-30,945

11,496

-36,807

-25,312

-2,404

5,505

-33,706

37,072

-22,187

-3,344

11,540

-10,670

2,264

9,877

1,471

2014

26,155

21,884

-1,556

13,364

-3,668

21,121

77,301

-41,358

35,943

-1,297

4,906

-37,748

-25,648

-17,045

-3,367

-46,060

-6,507

1,471

5,383

347

2015

41,541

19,712

17,178

7,066

-14,209

137,207

208,495

-45,101

163,394

-3,816

5,774

-43,144

-148,744

-7,066

-9,717

-165,527

-176

347

171

2016E

37,620

22,284

-6,116

5,628

-10,066

14,143

63,494

-35,000

28,494

6,116

-28,884

-5,628

-10,312

-15,941

18,669

171

18,840

(INR Million)

2017E

47,546

24,711

-7,334

5,117

-11,039

-2,195

56,805

-35,000

21,805

7,334

-27,666

-5,117

-11,145

-16,262

12,877

18,840

31,717

2018E

59,020

26,668

-8,866

5,117

-13,703

1,091

69,327

-30,000

39,327

8,866

-21,134

-5,117

-13,842

-18,959

29,234

31,717

60,951

22 July 2015

Oil & Gas | Update

IOCL: Financials and valuations

Income Statement (Consolidated)

Y/E March

Net Sales

Change (%)

Finished Gds Pur.

Raw Materials Cons

Other Operating Costs

EBITDA

% of Net Sales

Depreciation

Interest

Other Income

Excep/Prior period items

PBT

Tax

Rate (%)

PAT

Minority interest

Group net profit

Adj. net profit

Change (%)

Balance Sheet

Y/E March

Share Capital

Reserves

Net Worth

Minority interest

Loans

Deferred Tax

Capital Employed

Gross Fixed Assets

Less: Depreciation

Net Fixed Assets

Capital WIP

Investments

Goodwill

Cash & Bank Balance

Inventory

Debtors

Loans & Advances

Other assets

Curr. Assets, L & Adv.

Liabilities

Provisions

Net Current Assets

Application of Funds

E: MOSL Estimates

2012

4,072,314

32.2

1,572,508

2,041,610

277,923

180,273

4.4

53,093

58,947

48,797

-77,078

39,953

-2,700

-6.8

42,653

-393

42,260

119,338

52.4

2013

4,607,497

13.1

1,555,286

2,590,820

334,015

127,377

2.8

56,915

70,835

45,416

45,042

8,770

19.5

36,273

8,217

44,490

-62.7

2014

4,872,595

5.8

1,560,457

2,767,619

384,808

159,711

3.3

63,600

59,079

45,278

17,468

99,778

30,113

30.2

69,666

1,190

70,856

53,388

20.0

2015

4,483,152

-8.0

1,408,174

2,583,039

398,514

93,424

2.1

52,190

41,746

53,975

16,681

70,143

21,426

30.5

48,718

402

49,120

32,439

-39.2

2016E

3,282,782

-26.8

1,083,307

1,706,176

277,310

215,990

6.6

53,582

33,023

41,132

170,517

61,046

35.8

109,471

-1,022

108,449

234.3

2017E

3,681,623

12.1

894,071

2,221,061

324,897

241,595

6.6

67,164

31,928

45,705

188,208

62,518

33.2

125,691

-892

124,799

15.1

(INR Million)

2018E

3,821,753

3.8

899,732

2,422,487

222,057

277,478

7.3

75,239

30,220

50,662

222,681

73,992

33.2

148,689

-848

147,842

18.5

(INR Million)

2018E

24,280

1,031,087

1,055,366

14,064

514,282

88,280

1,671,992

1,934,431

793,031

1,141,400

43,845

158,797

878

302,791

591,206

134,128

295,927

46,290

785,443

257,827

327,072

1,671,993

2012

24,280

579,454

603,734

19,437

800,153

59,696

1,483,020

1,076,256

430,447

645,809

154,496

175,879

244

8,220

638,510

115,518

436,202

23,387

561,218

154,028

506,591

1,483,020

2013

24,280

606,092

630,372

12,618

867,894

63,323

1,574,207

1,151,002

484,133

666,869

272,400

173,508

870

12,198

666,043

125,021

456,188

44,148

619,702

223,335

460,560

1,574,207

2014

24,280

654,851

679,130

11,706

889,325

64,228

1,644,389

1,269,522

544,856

724,666

380,609

158,950

878

37,045

723,394

125,517

470,905

44,484

751,018

271,040

379,287

1,644,389

2015

24,280

689,767

714,047

11,303

571,042

73,417

1,369,808

1,386,731

597,046

789,685

368,845

158,797

878

77,100

525,172

144,794

315,701

44,929

799,985

256,108

51,604

1,369,809

2016E

24,280

758,446

782,726

12,325

574,042

84,288

1,453,381

1,619,631

650,628

969,003

218,845

158,797

878

124,396

538,413

122,195

295,775

45,378

764,489

255,809

105,858

1,453,381

2017E

24,280

883,245

907,525

13,217

577,042

86,111

1,583,894

1,889,531

717,792

1,171,739

43,845

158,797

878

208,710

579,311

130,773

295,850

45,832

794,238

257,602

208,636

1,583,895

22 July 2015

Oil & Gas | Update

IOCL: Financials and valuations

Ratios

Y/E March

Basic (INR)

Adj. EPS

Reported EPS

Cash EPS

Book Value

Dividend

Payout (incl. Div. Tax.)

Valuation (x)

P/E

Cash P/E

EV / EBITDA

EV / Sales

Price / Book Value

Dividend Yield (%)

Profitability Ratios (%)

RoE

RoCE

Turnover Ratios

Debtors (No. of Days)

Asset Turnover (x)

Leverage Ratio

Debt / Equity (x)

Cash Flow Statement

Y/E March

OP/(Loss) before Tax

Depreciation

Interest Paid

Direct Taxes Paid

(Inc)/Dec in WC

Oil Bonds

Other op activities

CF from Op. Activity

(Inc)/Dec in FA & CWIP

Free Cash Flow

(Pur)/Sale of Investments

CF from Inv. Activity

Inc / (Dec) in Debt

Dividends Paid

Interest Paid

CF from Fin. Activity

Inc / ( Dec) in Cash

Add: Opening Balance

Closing Balance

2012

49.2

17.4

71.0

248.7

5.0

12.2

8.9

6.2

9.8

0.5

1.8

1.1

2013

18.3

41.8

259.6

6.2

35.2

23.9

10.5

14.4

0.4

1.7

1.4

2014

22.0

29.2

48.2

279.7

8.7

36.4

19.9

9.1

11.6

0.4

1.6

2.0

2015

13.4

20.2

34.9

294.1

5.0

41.0

32.8

12.6

16.1

0.3

1.5

1.1

2016E

44.7

66.7

322.4

14.0

37.7

9.8

6.6

6.8

0.5

1.4

3.2

2017E

51.4

79.1

373.8

16.0

37.4

8.5

5.5

5.8

0.4

1.2

3.7

2018E

60.9

91.9

434.7

19.0

37.3

7.2

4.8

4.5

0.3

1.0

4.3

20.2

12.9

7.2

7.6

8.2

8.8

4.7

6.3

14.5

14.4

14.8

14.5

15.1

15.5

8.6

3.9

9.5

4.1

9.4

4.0

11.0

3.4

14.8

2.2

12.5

2.1

12.6

2.0

1.3

1.4

1.3

0.8

0.7

0.6

0.5

(INR Million)

2018E

222,681

75,239

30,220

-71,823

-24,355

231,961

-44,900

187,061

-44,900

-62,760

-30,220

-92,980

94,081

208,710

302,791

2012

39,953

49,839

59,016

-4,066

-132,204

-20,192

-7,654

-170,184

-177,838

39,652

-130,532

222,728

-28,057

-63,643

131,028

-7,158

15,379

8,221

2013

45,042

57,103

71,184

-11,690

-44,530

-23,715

93,395

-127,995

-34,600

1,153

-92,936

96,681

-14,922

-78,240

3,519

3,978

8,221

12,199

2014

99,779

63,691

59,101

-18,956

54,506

-16,081

242,040

-218,243

23,797

-1,889

-185,944

55,975

-18,501

-68,722

-31,248

24,847

12,199

37,046

2015

70,143

52,190

41,746

-12,237

367,738

519,580

-105,445

414,135

153

-105,293

-318,283

-14,204

-41,746

-374,233

40,054

37,046

77,101

2016E

170,517

53,582

33,023

-50,175

-6,959

199,988

-82,900

117,088

-82,900

3,000

-39,770

-33,023

-69,793

47,295

77,101

124,396

2017E

188,208

67,164

31,928

-60,694

-18,463

208,142

-94,900

113,242

-94,900

3,000

-31,928

-28,928

84,314

124,396

208,710

22 July 2015

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