Thematic | January 2017
Oil & Gas
The Three Musketeers
Swarnendu Bhushan
(Swarnendu.Bhushan@MotilalOswal.com); +91 22 6129 1529
Abhinil Dahiwale
(Abhinil.Dahiwale@motilaloswal.com); +91 22 3980 4309
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Thematic | Oil & Gas
Contents | Oil & Gas: The three musketeers
Summary .............................................................................................................................. 3
Standing up for the three musketeers, once again ................................................................ 5
A consumption-led story ....................................................................................................... 6
High GRMs – a dance of Mayflies? ...................................................................................... 14
The big gets bigger! ............................................................................................................. 19
Key risks .............................................................................................................................. 24
Indian Oil Corporation ........................................................................................................ 25
Bharat Petroleum ............................................................................................................... 30
Hindustan Petroleum .......................................................................................................... 35
The Three Musketeers
by Alexandre Dumas is one of the most popular fictions ever
written. Set in the early seventeenth century, the story is about how the three
musketeers – Athos, Porthos and Aramis – helped a young gentleman – d’Artagnan
– in his quest to join the elite Musketeers of the Guard. We expect history, although
fictional, to repeat itself. The three OMCs are exhibiting the traits of the
musketeers. Emboldened by deregulation and a high consumption growth
environment, the OMCs are likely to help investors in their quest for higher returns.
3 January 2017
2

Thematic | January& Gas
Thematic | Oil 2017
Oil & Gas
The three musketeers
Improving cash flows for IOCL – our top pick among the OMCs
Gross marketing margins (INR/ltr)
Diesel
3.1
2.7
2.4
1.8
2.9
2.7
2.6
Petrol
Oil marketing companies (OMC) have outperformed the Sensex by 205% over FY14-16
and earnings growth has been 3.8x that of Sensex. As a result, higher RoEs (up from
10% to 18%) and lower gearing (debt:equity down from 1.5 to 0.75) make a case for a
re-rating.
The three oil marketing companies (OMCs) - Indian Oil Corporation (IOCL), Bharat
Petroleum (BPCL) and Hindustan Petroleum (HPCL) - accounted for ~3% of MOSL
universe corporate profits in FY14 and FY15. This contribution rose to 6% in FY16, and
is estimated at 7.2% in FY17. RoE of the OMCs is 18%, as against 12% for our universe.
However, market cap of the OMCs is low at ~2.5% of our universe and their FY17
valuations (P/E) are at 54% discount to our universe.
Private sector players have taken a backseat, with only ~4% auto-fuel market share in
the 24 months post deregulation. Also, current marketing margins will not allow
greenfield investments in marketing. We thus expect the private sector share to
continue remaining low.
Capital allocation will be more sensible as we expect dividend payout of more than
30% for the OMCs. This, in turn, has translated into a yield of ~3.7% for the OMCs v/s
Sensex dividend yield of 1.8% and oil sector bellwether Reliance Industries' (RIL)
dividend yield of 0.9%.
Marketing, a consumption-led story…
Singapore GRM (USD/bbl)
7.9
5.8
4.3 4.1
5.2
6.1
5.2
3.0
6.1
Improving road connectivity, rising urbanization and expansion of urban centers
in India have boosted demand for two wheelers significantly. Resultantly, petrol
consumption grew 14.5% in FY16 and 11.7% over April-November 2016.
Similarly, rising industrial and agricultural activities led to diesel consumption
growth of 7.5% in FY16 and 4.2% over April-November 2016.
Over FY17-19, we expect diesel consumption in India to grow by 10% and petrol
consumption by 5%, aiding marketing EBITDA of the OMCs.
…But high GRMs seem to be a dance of Mayflies?
After ending FY16 at USD7.5/bbl, the benchmark Singapore GRM declined to
USD4.8 over April-August 2016. However, due to large outages and clamp down
on Chinese teapot refineries, it climbed to USD6-8 over September-November
2016.
The expiry of Chinese tax breaks on smaller vehicles from January 2017, the end
of driving season in the US and the increasing supply glut of 2.2m bopd over
2016-21 should lead to a moderation in global refining margins to USD5-6 over
next 2-3 years, in our view.
3 January 2017
3

Thematic | Oil & Gas
The big gets bigger!
Among the OMCs, we prefer IOCL. It is stabilizing its ultra-modern 15mmtpa
Paradip refinery. Aided by Paradip, we believe that the company would be able
to clock a GRM of USD5.8/bbl over FY17-19. Product availability from Paradip
would also help in ramping up its retail fuel sales in the south.
BPCL would also be able to increase its market share in the south due to
increased product availability from the expanded Kochi refinery.
We believe HPCL is most vulnerable to market share loss to the other OMCs
until its Vizag expansion is completed.
Major capex projects of IOCL and BPCL are already completed, while HPCL is
embarking on capex that is almost half the size of its market cap.
Global peers are trading at 10.7x one-year forward P/E and 6.8x one-year
forward EV/EBITDA. Compared to this, IOCL is trading at 8.6x FY18E EPS and 6.1x
FY18E EBITDA, BPCL at 11.6x FY18E EPS and 7.7x FY18E EBITDA, and HPCL at
10.3x FY18E EPS and 7.8x FY18E EBITDA.
We value the OMCs using SOTP. We value IOCL at INR464 (upside: 34%), BPCL at
INR756 (upside: 16%) and HPCL at INR543 (upside: 17%), respectively. We
recommend a buy rating for all the OMCs with a strong preference for IOCL.
With Paradip completion, we
expect IOCL to generate free cash
flow of INR47/share over FY17-19
We expect, Bhatinda to
boost performance with
higher refining margins
OMC’s have outperformed Sensex by 203% since January 2014
BPCL
HPCL
IOCL
OMC
Sensex
528
350
333
293
128
We expect, refining to get boost
from Kochi and marketing to
add INR57b of EBITDA in FY19
3 January 2017
4

Thematic | Oil & Gas
Standing up for the three musketeers, once again
A case for re-rating
The recent hike in auto fuel prices amid a sharp rise in oil prices confirms the
independence of the OMCs and reaffirms our faith in deregulation.
Private players have not been able to take significant market share since diesel
deregulation more than two years ago. Low marketing margins of the OMCs ensures
that the scenario will remain so going forward.
The government has excise duty on petrol and diesel as an additional tool to manage
retail fuel prices if inflation becomes a concern.
Profitability intact
Unshackling of the OMCs
looks permanent
Post the recent price hikes, the gross margin on petrol and diesel is back to
INR2.7/liter, marginally lower than the previous fortnight. Additionally, there
would be substantial inventory gain due to the recent rally in oil prices.
We do not expect crude oil prices to sustain above USD60/bbl for long due to
the expected non-compliance within OPEC and non-OPEC countries with respect
to agreed production cuts.
The Indian government has increased excise duty on petrol and diesel by
INR12/liter and INR14/liter, respectively, since November 2014. This leaves
ample room for the government to manage inflation without tinkering with the
deregulated regime.
Exhibit 1: Gross margin on auto fuels (INR/ltr)
5.0
4.0
3.0
2.0
1.0
0.0
Petrol
Diesel
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Source: PPAC, MOSL
3 January 2017
5

Thematic | Oil & Gas
A consumption-led story
Expect strong growth in petrol and diesel consumption
India’s per capita consumption of refined products at nearly one-fifth of global
average is much less than that of countries like the US, Germany, France and even
China.
India has the second largest road network in the world, but its per capita road
network is low in international comparison. We expect passenger traffic/road freight
CAGR of 11%/7.8% until 2022, resulting in high demand for automotive fuels.
IOCL has a market share of 43.4% in petrol, followed by BPCL (27.5%) and HPCL
(25.7%). Non-OMCs have been able to take only ~3.4% market share so far post
deregulation.
Similarly, IOCL has a market share of 48.0% in diesel, followed by BPCL (25.9%) and
HPCL (22.6%). Non-OMCs have been able to take only ~3.5% market share in diesel.
India’s refined products consumption at 1/5
th
of global average
Average global per capita petroleum consumption stands at 746 liters/year. The
US has per capita consumption of 3,464 liters/year, while other developed
countries like Germany and France consume 1,719 liters/year and 1,545
liters/year, respectively. In comparison, India’s per capita consumption still
stands at 174 liters/year. Even China consumes 2.6x that of India.
However, with a growing economy and improving network of roads, we expect
India to record growth of 10% and 5% in petrol and diesel consumption,
respectively, over next 2-3 years.
Exhibit 2: Per capita petroleum consumption
3463
lit/yr
1962
867
450.6
174
India
Brazil
Japan
1719
1545
1422
746
US
China
Germany
France
Russia
World
Source: www.worldbymap.org, MOSL
Second largest road network in the world, but long way to go
Increasing infrastructure to
propel fuel consumption in
India
Although India has the second largest road network (5.23m km) in the world, a
comparison of international data shows that the country is way behind in terms
of per capita road network.
Currently, more than 64.5% of all goods and 85.9% of all passenger traffic use
the road network. The Ministry of Road and Transport estimates that
freight/passenger traffic would increase at a CAGR of 7.8%/11% over 1951–
2022.
Overall, rising urbanization, urban centers expansion and industrialization have
been fuelling huge demand for roads in the country.
6
3 January 2017

Thematic | Oil & Gas
Exhibit 3: Per capita road network
km/100,000 population
1466
573
899
288 336 323 149
693 728
260
498
787
948
2159
1448
674
2116
Source: National Transport Development Policy Committee, MOSL
Exhibit 4: Addition of national highways
Length of national highway added under various five yr plans
(km)
Exhibit 5: Strong growth in number of vehicles
Number of total vehicles in India (mn)
23.3 23.9
9.7 10.9 10.7 11.1
14.1
18.0
20.7 20.5 21.5
Source: NHAI, MOSL
Source: SIAM, MOSL
Exhibit 6: Rise in passenger traffic
Billion-passenger km (road)
40,000
30,000
20,000
10,000
0
Exhibit 7: Increase in road freight traffic
1600
1200
800
400
0
Billion tonne km
Source: Five Year Plan, MOSL
Source: IRaDe, MOSL
OMCs retain market share
Driven by increasing demand for two wheelers, improving road connectivity and
declining fuel prices, petrol consumption continues to grow at a high pace. After
double-digit growth over past two years, petrol consumption continued to grow
at 11.7% over April-November 2016. IOCL has a market share of 43.4% in petrol,
followed by BPCL (27.5%) and HPCL (25.7%). Non-OMCs have been able to take
only ~3.4% market share so far post deregulation.
After +7.5% in FY16, diesel sales grew just 4.2% over April-November 2016.
However, increasing activities in the construction, mining, logistics, cement,
7
3 January 2017

Thematic | Oil & Gas
FMCG and consumer durables sectors are expected to lift diesel consumption.
IOCL has a market share of 48.0% in diesel, followed by BPCL (25.9%) and HPCL
(22.6%). Non-OMCs have been able to take only ~3.5% market share.
Exhibit 8: Consumption of petrol/diesel grew at 14.5%/7.5% in FY16
Petrol consumption grows
at 11.7% in FY17YTD; diesel
at 4.2%
12.0
8.0
4.0
0.0
-4.0
Diesel
Petrol
20.0
15.0
10.0
5.0
0.0
Source: PPAC, MOSL
Low marketing margin to keep competition at bay
Initial expectation post diesel deregulation in 2014 was that marketing margins
would expand. However, the OMCs have deliberately kept marketing margins
low to prevent competition from non-OMCs.
We believe that marketing gross margins would increase only to take care of
inflation in marketing cost and that net marketing margins would remain at
current levels. However, the companies have been using marketing margins to
adjust for large fluctuations in inventory valuations.
Average gross margin on diesel since April 2015 stands at INR2.6/liter,
marginally higher than INR2.2/liter when diesel was regulated. Similarly,
average gross margin on petrol since April 2015 stands at INR2.8/liter, higher
than INR2.2/liter when petrol was regulated.
Exhibit 9: Gross marketing margins in check to prevent competition (INR/ltr)
5.0
4.0
3.0
2.0
1.0
0.0
Petrol
Diesel
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Source: PPAC, MOSL
Fuel retail outlet economics challenging at low volumes
At an all-India level, average monthly fuel volume stood at ~170KLPM and we
estimate RoIC of ~12% at these volumes.
We note that the retail fuel economics will vary widely depending on location
and volumes and land price will play a major role in pace of expansion for new
outlets.
8
3 January 2017

Thematic | Oil & Gas
As the calculation suggests, it is imperative to have higher throughput at the fuel
pump to make decent returns.
Exhibit 10: Excluding land costs, retail fuel pump economics get into not-so-attractive zone at lower volumes
in INR '000
Volumes (KLPM)
Annual volumes ('000 ltr)
Average Marketing Margin (INR/ltr)
PBT
Income tax (@ 30%)
PAT
PAT (INR/ltr)
RoIC (excluding land cost)
Investment
Land
RoIC (including land cost)
Case 1
100
1,200
1.00
1,200
360
840
0.70
14%
6,000
6,000
7%
Case 2
125
1,500
1.00
1,500
450
1,050
0.70
18%
6,000
6,000
9%
Case 3
150
1,800
1.00
1,800
540
1,260
0.70
21%
6,000
6,000
11%
Case 4
175
2,100
1.00
2,100
630
1,470
0.70
25%
6,000
6,000
12%
Case 5
200
2,400
1.00
2,400
720
1,680
0.70
28%
6,000
6,000
14%
Source: Company, MOSL
Investment could vary between INR50-60 lakh
Assuming 12,000sq ft at rate of INR500/sq ft
Avg. marketing margins for Petrol/Diesel
Comments
OMCs continue dominating marketing infrastructure
We believe that low marketing margins would prevent any meaningful
competition.
Non-OMCs continue to struggle on the retail side due to the lack of marketing
infrastructure. Reliance Industries has opened only 1,022 retail outlets and
consistently delayed the opening of new outlets. British Petroleum has also
been recently granted a license to open up to 3,500 retail outlets. Shell too has a
license to open up to 2,000 retail outlets, but has been operating only 80
outlets. MRPL also has a license to open up to 500 retail outlets, but has not
shown any progress. Essar Oil has also made minor inroads into fuel retailing. It
remains to be seen what happens now with ownership change in the company.
Over the years, OMCs have developed large marketing and distribution
infrastructure. Their assets are low-cost and depreciated. It will not be possible
for any new company to match the profitability at existing marketing margins.
However, Petroleum and Natural Gas Regulatory Board (PNGRB) has been
mulling throwing open existing product pipelines of public sector companies for
common carrier access. The public sector companies, however, have
vehemently opposed this. If the product pipelines are thrown open, then the
non-OMCs, with much lesser investment in rest of the infrastructure, can easily
ramp up their marketing presence. For now, the OMCs continue to dominate
the marketing infrastructure.
3 January 2017
9

Thematic | Oil & Gas
Exhibit 11: 90% of the marketing terminals/depots belong to
the OMCs (FY16)
HPCL
26%
BPCL
25%
RIL
5% Essar Oil
3%
Shell
1%
Others
2%
Exhibit 12: 94% of the retail outlets belong to the OMCs
(FY16)
HPCL
25%
BPCL
24%
RIL
2%
Essar Oil
4%
Shell
0%
IOCL
38%
IOCL
45%
Source: PPAC, MOSL
Exhibit 13: 77% of the pipelines belong to the OMCs (FY16)
Others
22%
Exhibit 14: 89% of the product pumping capacity belongs to
the OMCs (FY16)
Others
11%
IOCL
41%
HPCL
33%
BPCL
15%
HPCL
20%
BPCL
13%
IOCL
45%
Source: PPAC, MOSL
Bhatinda refinery helps HPCL gain market share
With its refineries located at Mumbai and Vizag HPCL, HPCL has traditionally
faced constrained product availability in the north. Limited presence in the
north also adversely affected its ability to expand aggressively in western and
central India.
However, in anticipation of product availability from its upcoming 9mmtpa
Bhatinda refinery, it ramped up its presence across Rajasthan, Punjab and
Haryana. Since these regions could now be serviced primarily from the Bhatinda
refinery, it has unlocked the potential to ramp up sales in MP and Gujarat.
3 January 2017
10

Thematic | Oil & Gas
Exhibit 15: Retail outlets opened over FY11-16
Source: Ministry of Petroleum and Natural Gas, MOSL
As a result of product availability due to the Bhatinda refinery, HPCL has
managed to take some market share from peers. Petrol consumption in the
country grew at a CAGR of 9% over FY11-16. With a CAGR of 9.3% over FY11-16,
HPCL surpassed industry growth despite the entry of private players.
11
3 January 2017

Thematic | Oil & Gas
India’s diesel consumption CAGR stood at 4.4% over FY11-16. However, due to
the strategic roll out of retail outlets in north, west and central India, HPCL
recorded a CAGR of 6.1% over this period, almost 50% higher than the industry
average.
Exhibit 16: Even at 10% private market share, expect the OMCs’ volume CAGR at 3-4%
Petrol (mmt)
IOCL
BPCL
HPCL
Total dom. sales
CAGR (%)
Total dom. sales
IOCL
BPCL
HPCL
Diesel (mmt)
IOCL
BPCL
HPCL
Total dom. sales
CAGR (%)
Total dom. sales
IOCL
BPCL
HPCL
4.4%
2.5%
5.8%
6.1%
Source: Company, MOSL
31.6
14.6
12.5
60.1
52.6
24.3
20.9
34.1
16.3
14.2
64.8
52.7
25.2
22.0
35.6
18.0
15.5
69.2
51.5
26.1
22.4
33.9
18.3
16.0
68.4
49.6
26.8
23.4
34.5
18.4
15.8
69.4
49.7
26.5
22.8
35.8
19.4
16.9
74.6
48.0
25.9
22.6
9.0%
8.3%
9.0%
9.3%
6.4
3.9
3.6
14.2
FY11
Mkt sh. (%)
44.8
27.6
25.4
6.7
4.2
3.9
15.0
FY12
Mkt sh (%)
44.6
27.7
25.8
7.0
4.4
4.1
15.7
FY13
Mkt sh (%)
44.2
28.2
25.9
7.5
4.8
4.4
17.1
FY14
Mkt sh (%)
43.9
28.1
25.8
8.4
5.4
5.0
19.1
FY15
Mkt sh (%)
43.8
28.0
26.2
9.5
6.0
5.6
21.8
FY16
Mkt sh (%)
43.4
27.5
25.7
Paradip to help IOCL gain market share in south from HPCL/BPCL
For HPCL, the largest additions have been in AP/Telangana, Maharashtra,
Madhya Pradesh, Uttar Pradesh, Rajasthan and Gujarat. HPCL traditionally
lacked products in the northern market and could not expand in west and
central India as well. However, with products now available from the Bhatinda
refinery, it has been able to increase penetration across Maharashtra, Madhya
Pradesh and Uttar Pradesh.
BPCL has been focusing on Maharashtra. It has also been penetrating into
AP/Telangana and Tamil Nadu to benefit from higher product availability led by
Kochi expansion.
IOCL has presence in the south only through its subsidiary Chennai Petroleum.
However, in anticipation of product availability from its upcoming Paradip
refinery, it has been focusing on increasing penetration in AP/Telangana,
Karnataka, Maharashtra and Tamil Nadu. As Paradip stabilizes, it would eat into
the market share of BPCL and HPCL in the south, in our view.
3 January 2017
12

Thematic | Oil & Gas
Exhibit 17: Retail outlets opened over FY11-16
IOCL
BPCL
HPCL
Source: Ministry of Petroleum & Natural Gas, MOSL
3 January 2017
13

Thematic | Oil & Gas
High GRMs – a dance of Mayflies?
IOCL and BPCL would improve GRM with new capex
We expect the global glut in refining to expand by 2.2mbopd over 2016-21. In the
short term too, we expect the expiry of Chinese tax breaks on smaller vehicles, along
with high petrol inventory and the end of driving season in the US, to dampen the
benchmark cracks.
IOCL would increase its GRM with stabilization of its 15mmtpa Paradip refinery,
despite a benign refining environment. BPCL is also expected to increase its GRM
following the commissioning of its Kochi Integrated Refinery Expansion Project. HPCL
is embarking on expansion and upgradation of its Vizag refinery, but this is expected
to complete only by FY20.
Global glut to increase by 2.2m bopd
OPEC estimates that 7.3m bopd of new distillation capacity would come up over
2016-21. In addition, debottlenecking would add 1m bopd of refining capacity.
Closures would stand at 2.6m bopd. As against net capacity addition of 5.7m
bopd, demand is expected to grow by just 3.5m bopd. This should lead to a 2.2m
bopd increase in the supply glut. Hence, we expect refining margins to remain
under pressure.
Exhibit 18: Refinery capacity addition (million bopd)
2016
2017
2018
2019
2020
2021
2016–2021
US &
Canada
0.4
0.1
0.1
0.1
0
0
0.8
Latin
America
0
0
0.1
0.1
0.1
0.1
0.4
Africa
0
0
0
0.1
0.3
0.2
0.6
Europe
0
0
0.1
0
0
0
0.2
Russia &
Caspian
0
0.1
0.1
0.1
0
0
0.3
Middle
East
0.2
0.2
0.1
0.5
0.2
0.5
1.7
China
0.1
0.3
0.3
0.5
0.3
0.3
1.8
Other
World
APAC
0
0.9
0.4
1.1
0.3
1.1
0.3
1.7
0.3
1.3
0.2
1.4
1.5
7.3
Source: OPEC, MOSL
Expect correction in short term too
China introduced a 50% tax break on purchase of smaller vehicles in October
2015 to boost its fledgling automotive industry. This had catapulted
consumption of petrol (crack spread expanded to ~USD16-20/bbl) until the
teapot refiners jumped into the fray and spoiled the party.
The tax break is valid only till December 2016. Expiry of the same is expected to
adversely impact petrol crack spread. China still is battling with poor economic
growth. Higher refinery utilizations have resulted in record exports of diesel and
petrol from China.
3 January 2017
14

Thematic | Oil & Gas
Exhibit 19: Export of diesel from China (tmt/month)
Net export from China
2,000
1,500
1,000
500
0
-500
-1,000
-1,500
Lack of domestic
consumption growth and
restart of teapot refineries
has boosted exports from
China
Source: Bloomberg, MOSL
Exhibit 20: Export of petrol from China (tmt/month)
Net export from China
1,200
900
600
300
0
Source: Bloomberg, MOSL
Rising inventory of petrol in US to adversely impact cracks
Additionally, in the short term, with the onset of winter, the driving season in
the US comes to an end. As the US is the largest consumer of petrol, this would
also add to the decline in petrol crack spread in the short run.
Exhibit 21: High petrol inventory in the US
30.5
28.0
25.5
23.0
20.5
18.0
24.0
No of days of supply
Avg since 2007
Source: Bloomberg, MOSL
3 January 2017
15

Thematic | Oil & Gas
Exhibit 22: Export of petrol from the US (mbopd)
Petrol export
1.0
0.5
0.0
-0.5
-1.0
Source: Bloomberg, MOSL
OMCs improve their operating leverage
Continuously working
towards improving
efficiencies
Led by several process-efficiency projects, the OMCs have been able to increase
the distillate yield. IOCL has increased its yield by more than 5% over FY10-16.
On the other hand, BPCL and HPCL have been able to raise their distillate yields
by 7% and 4%, respectively. BPCL has been able to lower its fuel & loss by more
than 1% over FY10-16, while both IOCL and HPCL have not shown much
improvement in this regard.
Additionally, BPCL is completing the INR160b Integrated Refinery Expansion
Project (IREP), which would increase its capacity from 9.5mmtpa to 15.5mmtpa
by end-FY17. This is expected to increase its GRM by ~USD2/bbl.
HPCL is also implementing INR210b expansion at the Vizag refinery, which
would increase its capacity from 8.3mmtpa to 15mmtpa. This project also
includes bottom upgradation and is expected to increase GRM by ~USD2/bbl.
IOCL is stabilizing its INR350b, 15mmtpa greenfield Paradip refinery. With
complexity of 12.2, it is one of the most complex refineries in India.
Exhibit 24: Improvement in fuel & loss (%) - FY16
IOCL
84.9
10.0
8.5
80.6
7.0
5.5
4.0
8.2
BPCL
HPCL
8.7
Exhibit 23: Improvement in distillate yield (%) - FY16
90.0
85.0
80.0
75.0
70.0
65.0
77.7
IOCL
BPCL
HPCL
7.2
5.9
7.7
75.3
69.3
73.6
4.8
Source: PPAC, MOSL
Paradip is a jewel in the crown for IOCL
After much delay, IOCL’s flagship 15mmtpa Paradip project of INR350b has been
commissioned now. All units – primary, secondary and utilities – have been
commissioned, and the refinery is currently running at 65-70% utilization.
Road, railway and coastal facilities are available for evacuation of products. As
the refinery is located on the coast, it would help lower inventory volatility.
16
3 January 2017

Thematic | Oil & Gas
With Nelson Complexity Index of 12.2, the Paradip refinery is one of the most
complex refineries in India. It has a petrol yield of 25%, the highest among
Indian refineries.
Currently, petrol is the most profitable refinery product. The company is also
constructing a polypropylene project at Paradip, which would be completed by
late 2018. This will further boost profitability of the company.
Exhibit 26: Product yield for Paradip (%)
% API gravity (deg)
6.7
10
33.3
33.3
6.7
10
100
22
19.6
30.5
30.2
19
24.1
27.3
Propylene
LPG
Naphtha
MS
SK/ATF
HSD
Sulphur
Pet coke
Fuel & loss
Total
1.3
3.9
0
25.3
13.1
37.5
1.8
8.1
9
100
Source: Company, MOSL
Exhibit 25: Crude slate for Paradip
Crude slate
Ras Gharib
Marlim
Basrah Light
Kuwait
Soorosh
Oriente
Total
We expect the refinery to ramp up to 100% by end-FY17. In our view, at full
capacity utilization, the refinery itself would generate INR43b of EBITDA for the
company.
Exhibit 27: Profitability of Paradip refinery
Throughput (mmt)
GRM (USD/bbl)
Opex (USD/bbl)
EBITDA (INR mn)
FY18E
15
8.5
2.5
42,900
Source: MOSL
BPCL to get boost from Kochi IREP
BPCL is completing its INR160b IREP at Kochi. The project involves replacing
CDU-1 of 4.5mmtpa with a new CDU of 10.5mmtpa, which would increase the
refining capacity of Kochi from 9.5mmtpa to 15.5mmtpa.
As part of the expansion, it is also adding a delayed coker, FCCU, VGO hydro
treater, diesel hydro treater, sulfur recovery unit, hydrogen generation unit and
related utilities, which will increase the complexity of the whole complex to 9.5.
This is expected to boost GRM of the Kochi refinery by USD1.5-2/bbl. The
project also envisages production of propylene for the upcoming petrochemical
complex.
3 January 2017
17

Thematic | Oil & Gas
HPCL catching up with Vizag expansion, although 3-4 years away
HPCL has embarked on INR210b Vizag expansion, which will increase the
capacity of the Vizag refinery from 8.3mmtpa to 15mmtpa.
For this, it would have to incur heavy capex of ~INR100b/year over FY18-20,
inclusive of the other smaller projects. We are also concerned about the
technology being used. The expansion uses a technology called slurry
hydrocracker, which has been implemented at very few places globally.
High capex in the project would also stress its balance sheet, compared to IOCL
and BPCL which are coming to an end of their major capex projects.
3 January 2017
18

Thematic | Oil & Gas
The big gets bigger!
OMCs trading cheaper than global peers; IOCL is our top pick
Global peers are trading at 10.7x FY18E EPS and 6.8x FY18E EBITDA. In comparison,
IOCL is trading at 8.6x FY18E EPS and 6.1x FY18E EBITDA, BPCL at 11.6x FY18E EPS and
7.7x FY18E EBITDA, and HPCL at 10.3x FY18E EPS and 7.8x FY18E EBITDA. Global peers
have an RoE of 13.0%, while the OMCs have 19.9%.
Deregulation, first-mover advantage and a growing market put the OMCs in a sweet
spot as long as crude oil prices do not go through the roof.
We value the OMCs using SOTP. We value various segments at EV/EBITDA and add
investments to arrive at a TP of INR464 for IOCL, INR756 for BPCL and INR543 for
HPCL. IOCL is our top pick.
Global valuations suggest deep value for OMCs
For FY18, average P/E for global peers, excluding Indian companies, stands at
10.7x and average EV/EBITDA at 6.8x. Indian companies have a much higher RoE
of 20% (FY18) compared to 13% for global peers.
Exhibit 28: Valuation of global peers
RoE (%)
FY17/CY16 FY18/CY17
19.8
19.6
10.6
12.9
12.6
12.4
17.5
19.9
7.4
8.2
12.1
12.0
14.1
12.9
17.5
16.7
11.1
9.9
10.5
9.8
12.0
12.6
10.1
10.0
12.7
10.8
12.0
18.1
24.7
22.5
11.8
31.1
28.5
12.7
13.5
13.6
11.5
16.5
23.2
20.2
11.5
24.5
21.5
13.0
EV/EBITDA
FY17/CY16 FY18/CY17
7.8
7.6
7.1
6.7
6.3
6.3
9.1
8.5
8.9
8.9
6.4
6.1
6.0
6.1
7.3
6.5
7.6
6.7
4.4
4.4
8.6
8.0
7.7
7.4
5.6
8.2
6.3
5.6
7.9
5.2
8.2
5.3
5.2
7.2
5.4
7.3
5.7
5.5
6.8
5.1
7.1
5.1
5.2
6.8
PBV (x)
FY17/CY16 FY18/CY17
2.5
2.3
1.2
1.1
1.7
1.6
2.0
1.7
0.8
0.7
1.6
1.5
1.3
1.2
1.4
1.2
0.8
0.7
0.8
0.7
1.9
1.8
1.8
1.9
1.4
2.2
1.7
1.8
2.7
2.1
1.2
2.3
1.2
1.5
1.4
2.1
1.7
1.6
2.4
1.9
1.1
1.9
1.0
1.4
PE (x)
FY17/CY16 FY18/CY17
13.7
12.8
11.1
8.1
13.1
11.4
10.5
9.7
11.7
9.3
10.7
11.8
9.8
9.9
8.5
7.8
7.8
6.8
7.5
7.4
15.8
13.7
14.4
13.3
12.0
21.8
14.4
9.2
12.1
9.9
10.7
8.0
4.5
12.2
10.9
14.1
12.9
9.0
10.9
9.8
9.7
8.1
4.7
10.7
Caltex Australia
Petron Corp
Showa Shell Sekiyu KK
Esso Thailand PCL
JX Holdings Inc
TonenGeneral Sekiyu KK
Thai Oil PCL
S-Oil Corp
Idemitsu Kosan Co
SK Innovation Co Ltd
Phillips 66
Marathon Petroleum Corp
Valero Energy Corp
Western Refining Inc
Tesoro Corp
Indian Oil Corp
Bharat Petroleum Corp
Hindustan Petroleum Corp
Reliance Industries
MRPL
Chennai Petroleum Corp
Avg excl. Indian cos
Source: Bloomberg, MOSL
Incorporating operational excellence in valuation
During FY10-16, BPCL’s GRM has been the best among the OMCs. The INR160bn
IREP project is also going to improve its GRM. Hence, we use EV/EBITDA of 5x
for IOCL and HPCL and 5.5x for BPCL.
3 January 2017
19

Thematic | Oil & Gas
For retail fuel sales, throughput per month stands at 185kl for BPCL and much
lower 160kl for HPCL and 155kl for IOCL. Additionally, bulk diesel accounts for 8-
9% of diesel sales of BPCL and HPCL but 16-18% for IOCL. HPCL has higher
profitability in marketing because of its lube business. As a result, we value
marketing segment of IOC at 7.5x and 8x for HPCL and BPCL.
Exhibit 30: Throughput per retail outlet
FY16
5.1
6.6
6.7
7.5
160
155
kl/month
185
Exhibit 29: Refining
margins of OMCs -
GRM (USD/bbl)
FY10
IOCL
BPCL
HPCL
SG GRM
5.3
3.0
2.7
3.6
FY11
6.0
4.5
5.3
5.2
FY12
3.6
2.3
2.9
8.3
FY13
2.3
5.0
2.1
7.9
FY14
4.2
4.3
3.4
5.6
FY15
0.3
3.6
2.8
6.4
Source: Company, MOSL
IOCL
BPCL
HPCL
Source: Company, MOSL
IOCL is our top pick
For IOCL, we estimate EBITDA growth of 66% and PAT growth of ~102% over
FY16-19. RoE is expected to rise from 14.2% in FY16 to ~20% in FY18-19.
The stock is trading at 8.3x FY19E EPS and 5.7x FY19E EBITDA. We value its
refining, petrochem and others segment at 5x FY19E EBITDA, and marketing and
pipeline at 7.5x FY19E EBITDA. We further add investments to arrive at a target
price of INR464. We have a
Buy
rating on IOCL.
Exhibit 31: Assumptions
Exchange Rate (INR/USD)
Brent Crude (USD/bbl)
Market Sales Volume of refined products (MMT)
YoY Change (%)
GRM (USD/bbl)
IOCL GRM (USD/bbl)
Reuters Singapore GRM
Prem/(disc)
Refining capacity (mmt)
Utilization (%)
Refinery throughput (mmt)
YoY (%)
Pipeline throughput (mmt)
YoY (%)
Blended Gross Marketing Margin excld inventory (INR/ltr)
Under recoveries Sharing (INRb)
Gross under recoveries (INRb)
Upstream sharing
Govt. sharing
Net sharing (INRb)
Net sharing (%)
2015
61.4
86
73
2%
0.3
6.4
(6.1)
54.2
98.9
53.6
0.9
75.7
4.8
1,523
833
644
46
3%
2016
65.5
48
77
6%
5.1
7.5
(2.4)
54.2
104.6
56.7
5.8
79.8
3%
3.5
78
9
69
0
0%
2017E
67.4
49
77
-1%
6.2
5.2
0.9
69.2
88.4
61.2
7.9
84.4
5%
3.7
56
-
56
-
0%
2018E
70.0
60
79
3%
5.8
5.4
0.4
69.2
103.6
71.7
17.2
85.9
6%
4.1
51
-
51
-
0%
2019E
72.0
60
82
4%
5.8
5.4
0.4
69.2
103.6
71.7
0.0
86.9
2%
4.1
55
-
55
-
0%
3 January 2017
20

Thematic | Oil & Gas
Exhibit 32: Breakdown of standalone EBITDA
Refining
Marketing
Pipeline
Petchem
Others
Total
2015
(70,080)
84,950
54,900
34,200
38,940
142,910
2016
55,800
50,230
58,870
60,790
(2,410)
223,280
2017E
145,913
105,148
62,582
66,969
14,053
394,664
2018E
2019E
116,921
121,883
110,101
114,943
66,741
70,894
50,750
52,200
14,074
15,184
358,588
375,104
Source: Company, MOSL
Exhibit 33: Valuation
Valuation
Refining
Marketing
Pipeline
Petrochem
Others
Total
Net debt (FY18)
Oil bonds
Net debt excluding oil bonds
Standalone valuation
Value per share
Stake in Chennai Petro
Stake in Lanka IOC
Stake in Petronet
Stake in ONGC
Stake in GAIL
Stake in Oil India
Total value
EBITDA (INR m)
121,883
114,943
70,894
52,200
15,184
EV/EBITDA (x)
5.0
7.5
7.5
5.0
5.0
EV (INR m)
609,416
862,073
531,706
261,000
75,918
2,340,113
483,088
113,707
369,380
1,970,732
415
3
2
6
34
2
1
464
Source: Company, MOSL
BPCL would benefit from its Kochi expansion
We estimate EBITDA and PAT growth of 8% and 9%, respectively, over FY16-19.
RoE is expected to decline from 32% in FY16 to 21% in FY19.
The stock is trading at 10.9x FY19E EPS and 7.3x FY19E EBITDA. We value
refining segment at 5.5x, marketing segment at 8.0x, pipeline segment at 7.5x
FY19E EBITDA, and add investments to arrive at a target price of INR756. We
have a
Buy
rating on the company.
Exhibit 34: Assumptions
Particulars
Exchange Rate (INR/USD)
Brent Crude (USD/bbl)
Market Sales Volume of refined products (MMT)
YoY Change(%)
GRM (USD/bbl)
BPCL GRM (USD/bbl)
Reuters Singapore GRM
Prem/(disc)
Refining capacity (mmt)
Utilization (%)
Refinery throughput (mmt)
YoY (%)
3 January 2017
2015
61
86
34
1%
3.6
6.4
(3)
21.5
0%
109%
0%
2016
65
48
37
6%
6.6
7.5
(1)
21.5
0%
112%
3%
2017E
67
49
38
3%
5.7
5.5
0
24.5
14%
107%
8%
2018E
70
60
40
5%
6.2
5.4
1
27.5
12%
108%
14%
2019E
72
60
41
4%
6.2
5.4
1
27.5
0%
109%
1%
21

Thematic | Oil & Gas
Particulars
Pipeline throughput (mmt)
YoY (%)
Blended Gorss Marketing Margin excld inventory (INR/ltr)
Gross under recoveries
Upstream sharing
Govt. sharing
Net sharing (INRb)
Net sharing (%)
2015
11.6
0%
5.0
161
84
73
5
3%
2016
11.6
0%
4.4
18
2
16
-
0%
2017E
11.6
0%
3.3
10
-
10
-
0%
2018E
11.6
0%
3.3
12
-
12
-
0%
2019E
11.6
0%
3.3
13
-
13
-
0%
Source: MOSL
Exhibit 35: Valuation
Valuation
Refining
Marketing
Pipeline
Others
Total
Net debt
Oil bonds
Net debt excluding oil bonds
Valuation of standalone
Stake in IGL (INR)
Stake in Petronet (INR)
Stake in Oil India (INR)
Stake in Numaligarh (INR)
Stake in Bina (INR)
Others (INR)
BM-C-30 (INR)
BM-SEAL-11 (INR)
Rovuma Basin (INR)
Total value (INR)
EBITDA (INR m)
63,454
56,643
9,464
2,495
EV/EBITDA (x)
5.5
8.0
7.5
5.0
Value (INR m)
348,997
453,143
70,979
12,475
885,594
131,285
40,088
91,197
549
16
0
3
25
3
35
3
46
76
756
Source: Company, MOSL
3 January 2017
22

Thematic | Oil & Gas
HPCL going into capex mode
HPCL is embarking upon its flagship INR210b capex, which would strain its
balance sheet. We expect net debt of the company to rise from INR145b in FY16
to INR299b in FY19E.
The stock is trading at 10.1x FY19E EPS and 7.7x FY19E EBITDA. We value
refining segment at 5.0x, marketing at 8x, pipeline at 7.5x FY19E EBITDA, and
add investments to arrive at a target price of INR543 for the stock. We have a
Buy
rating.
Exhibit 36: Assumptions
Exchange Rate (INR/USD)
Brent Crude (USD/bbl)
Market Sales Volume of refined products (MMT)
YoY Change (%)
GRM (USD/bbl)
HPCL GRM (USD/bbl)
Reuters Singapore GRM
Prem/(disc)
Total Refinery throughput (MMT)
YoY (%)
Refining capacity utilization (%)
Blended marketing margin excld inventory (INR/lit)
Under recoveries Sharing (INRb)
Gross under recoveries
Upstream sharing
Govt. sharing
Net sharing
Net sharing (%)
2015
61
86
32
3
2.8
6.4
(4)
16.2
4%
109%
4.5
164
109
51
5
3%
2016
65
47
34
7
6.7
7.5
(1)
17.2
6%
116%
4.2
20
2
18
0
0%
2017E
67
49
35
2
5.3
6
(0)
16.5
-4%
112%
4.0
11
-
11
-
0%
2018E
70
60
37
6
5.0
5
(0)
16.0
-3%
108%
4.2
14
-
14
-
0%
2019E
72
60
38
4
5.0
5
(0)
16.0
0%
108%
4.2
15
-
15
-
0%
Source: Company, MOSL
Exhibit 37: Valuation
Valuation
Refining
Marketing
Pipeline
Others
Total
Net debt (FY18)
Oil bonds
Net debt excluding oil bonds (FY18)
Standalone valuation
Value per share (INR)
Stake in MRPL (INR)
Stake in Oil India (INR)
Stake in HMEL (INR)
Total value (INR)
EBITDA (INR m)
25,658
56,784
13,213
3,861
EV/EBITDA (x)
5
8
7.5
5
Valuation (INR m)
128,288
454,272
99,100
19,307
700,968
264,141
49,857
214,285
486,683
479
31
2
31
543
Source: Company, MOSL
3 January 2017
23

Thematic | Oil & Gas
Key risks
Sharing of marketing infrastructure may spell doom!
A rise in oil prices beyond USD60-65/bbl may bring deregulation of petrol, diesel and
ongoing reforms on kero/LPG under pressure.
Common carrier access to the product pipelines and other marketing infrastructure of
the OMCs could lead to much faster penetration of non-OMCs into fuel retailing.
The government has been pushing the OMCs to start capex on various projects. This
may result in capital misallocation.
Common carrier access could spell doom
The Petroleum and Natural Gas Regulatory Board (PNGRB) last year issued a
notice to declare the petroleum and petroleum product pipelines of the OMCs
as common carrier/contract carrier pipelines to allow third-party access for
transportation of fuel.
The move would provide the private firms (like Reliance Industries and Essar Oil)
with rights to move products on the pipeline network, threatening the market
leadership positions of the OMCs.
The lower utilization level at some of the pipelines raises the threat for the
OMCs. However, under the provision of PNGRB Act of 2006, pipelines are not
‘common carriers’ and the regulator's authority with respect to pipelines that
are not covered within the definition of common carrier is limited.
Exhibit 38: Petroleum product pipelines have ~75% utilization
Utilization (%)
136%
129%
93%
108%
69%
113%
83%
72%76%
67%
48%
23%
40%
29%
Average
112%
66%
100%
102%
81%
80%
73%70%
53%62%
96%
73%
58%
63%
30%
57%
33%
6%
IOC
HPCL
BPCL
Source: MOSL
3 January 2017
24

Thematic | Oil & Gas
Indian Oil Corporation
Deep value to offset decline in benchmark cracks
Stabilization of the newly commissioned INR350b, 15mmtpa Paradip refinery will add
EBITDA of INR43b from FY18.
It is the most diversified OMC, with EBITDA contribution of 32% from refining, 31%
from marketing, 14% from petrochem and 19% from pipeline.
With the completion of the Paradip refinery, we expect the company to generate free
cash flow of INR47/share over FY17-19.
Refining to get boost from Paradip
Paradip refinery is currently running at 65-70% utilization. We expect it to ramp
up to 90% by early 2017 and to full utilization in FY18. We expect USD8.5/bbl of
GRM from Paradip, which would result in USD5.8/bbl of GRM for the company
over FY17-19.
We expect refining EBITDA to increase from INR56b in FY16 to INR121b in FY19.
The company is implementing a fuel upgradation project of INR110b. Apart from
that, we do not see significant capex in the refining segment over next two
years.
Marketing to contribute INR115b by FY19
Over past few years, IOCL has lost market share due to increased availability of
products to HPCL from the newly commissioned Bhatinda refinery. We expect
commissioning of the Paradip refinery to help IOCL gain market share in the
south. In a conservative case, even if IOCL continues to grow at industry rate, we
expect marketing EBITDA of INR115b in FY19.
The lower utilization level at some of the pipelines raises the threat for the
OMCs. However, the company has been protesting and we do not see any
threat in next 2-3 years.
Pipeline is a steady business
IOCL operates the largest network of product pipelines in the country with total
network of 6,700km and capacity of 40mmtpa. We expect EBITDA of INR71b by
FY19.
The company is also working on Paradip-Raipur-Ranchi pipeline, Paradip-
Hyderabad pipeline and capacity augmentation of Salaya-Mathura pipeline,
which would further boost its pipeline EBITDA.
Valuation and recommendation
Global peers are trading at 10.7x FY18E EPS and 6.8x FY18E EBITDA. We value
IOCL using SOTP. Refining, petrochem and other segments are valued at 5x
FY19E EBITDA, while marketing and pipeline segments are valued at 7.5x FY19E
EBITDA. We have a
Buy
rating on the company with a target price of INR464.
3 January 2017
25

Thematic | Oil & Gas
Story in charts
Exhibit 39: Refining throughput of IOCL
Refinery throughput (mmt)
54.7
53.1
53.6
56.7
62.3
71.7
71.7
Exhibit 40: GRM trend of IOCL
IOCL GRM (USD/bbl)
10.0
7.5
5.0
2.5
0.0
2.3
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
7.9
5.8
5.4
Reuters Singapore GRM (USD/bbl)
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
Source: Company, MOSL
Source: Company, MOSL
Exhibit 41: Marketing sales volume
100
75
50
25
0
FY13
FY14
FY15
FY16
FY17E FY18E FY19E
Source: Company, MOSL
68.2
0.1
4.0
Market Sales Volume (mmt)
YoY (%)
81.7
8
5
3
0
-3
Exhibit 42: Pipeline throughput
Pipeline throughput (mmt)
90
85
80
75
70
65
FY13
FY14
FY15
FY16
FY17E FY18E FY19E
Source: Company, MOSL
76
3.10
1.16
YoY (%)
87
8
5
3
0
-3
-5
Exhibit 43: Return rations (consolidated)
RoE
32
27.1
24
19.6
16
8
0
7.2
6.6
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
18.5
14.6
RoCE
Exhibit 44: Debt and interest burden (consolidated)
Net Debt (INRm)
1,000,000
800,000
600,000
400,000
200,000
0
FY13 FY14 FY15 FY16 FY17E FY18E FY19E
Source: Company, MOSL
70,835
855,696
35,147
40,000
524,038
20,000
0
Interest (INRm)
80,000
60,000
Source: Company, MOSL
3 January 2017
26

Thematic | Oil & Gas
Exhibit 45: EBITDA growth and margins (consolidated)
EBITDA YoY (%)
150
100
50
3.0
0
-50
-38.8
FY13
FY14
FY15
FY16
FY17E FY18E FY19E
Source: Company, MOSL
4.6
3
0
119.8
8.4
EBITDA Margins (%)
12
9
6
Exhibit 46: PAT growth and margins (consolidated)
PAT YoY (%)
150
100
50
5.28
0
-50
0.96
FY13
FY14
FY15
FY16
FY17E FY18E FY19E
Source: Company, MOSL
4.57
4.56
PAT Margin (%)
8
6
4
2
0
Exhibit 47: P/E valuation chart
32
24
16
8
0
4.4
10.2
7.5
PE (x)
Peak(x)
Avg(x)
Min(x)
24.3
Exhibit 48: EV/EBITDA valuation charts
EV/EBDITA(x)
13
10
7
4
1
5.8
1.9
3.5
Peak(x)
Avg(x)
10.6
Min(x)
Source: Company, MOSL
Source: Company, MOSL
Exhibit 49: Valuation
Valuation
Refining
Marketing
Pipeline
Petrochem
Others
Total
Net debt (FY18)
Oil bonds
Net debt excluding oil bonds
Standalone valuation
Value per share
Stake in Chennai Petro
Stake in Lanka IOC
Stake in Petronet
Stake in ONGC
Stake in GAIL
Stake in Oil India
Total value
EBITDA (INR m)
121,883
114,943
70,894
52,200
15,184
EV/EBITDA (x)
5.0
7.5
7.5
5.0
5.0
EV (INR m)
609,416
862,073
531,706
261,000
75,918
2,340,113
483,088
113,707
369,380
1,970,732
415
3
2
6
34
2
1
464
Source: Company, MOSL
3 January 2017
27

Thematic | Oil & Gas
Financials and Valuations
Consolidated - Income Statement
Y/E March
Total Income from Operations
Change (%)
Raw Materials
Other Operating Costs
Total Expenditure
% of Sales
EBITDA
Margin (%)
Depreciation
EBIT
Int. and Finance Charges
Other Income
PBT bef. EO Exp.
EO Items
PBT after EO Exp.
Total Tax
Tax Rate (%)
Minority Interest
Reported PAT
Adjusted PAT
Change (%)
Margin (%)
FY13
4,607,497
13.1
4,146,106
334,015
4,480,120
97.2
127,377
2.8
56,915
70,462
70,835
45,416
45,042
0
45,042
8,770
19.5
-8,217
44,490
44,490
-62.7
1.0
FY14
4,872,595
5.8
4,328,076
384,808
4,712,884
96.7
159,711
3.3
63,600
96,111
59,079
45,278
82,310
17,468
99,778
30,113
30.2
-1,190
70,856
53,388
20.0
1.1
FY15
4,483,152
-8.0
3,991,213
398,514
4,389,727
97.9
93,424
2.1
52,190
41,234
41,746
53,975
53,463
16,681
70,143
21,426
30.5
-402
49,120
32,439
-39.2
0.7
FY16
3,544,253
-20.9
2,792,252
535,047
3,327,299
93.9
216,954
6.1
59,185
157,769
36,300
37,474
158,943
13,643
172,585
56,528
32.8
3,865
112,192
98,550
203.8
2.8
FY17E
3,574,315
0.8
2,781,578
397,536
3,179,114
88.9
395,201
11.1
71,026
324,175
30,881
38,184
331,478
0
331,478
88,161
26.6
3,865
239,453
239,453
143.0
6.7
FY18E
4,202,846
17.6
3,419,136
416,090
3,835,226
91.3
367,620
8.7
74,597
293,023
35,147
37,236
295,113
0
295,113
96,764
32.8
3,865
194,484
194,484
-18.8
4.6
(INR Million)
FY19E
4,547,309
8.2
3,736,402
426,565
4,162,967
91.5
384,342
8.5
77,955
306,386
35,529
37,396
308,254
0
308,254
101,052
32.8
3,865
203,337
203,337
4.6
4.5
Consolidated - Balance Sheet
Y/E March
Equity Share Capital
Total Reserves
Net Worth
Minority Interest
Total Loans
Deferred Tax Liabilities
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Goodwill on Consolidation
Capital WIP
Total Investments
Curr. Assets, Loans&Adv.
Inventory
Account Receivables
Cash and Bank Balance
Loans and Advances
Curr. Liability & Prov.
Account Payables
Provisions
Net Current Assets
Appl. of Funds
E: MOSL Estimates
FY13
48,559
581,813
630,372
12,618
867,894
63,323
1,574,207
1,151,002
484,133
666,869
870
272,400
173,508
1,303,597
666,043
125,021
12,198
500,336
843,037
619,702
223,335
460,560
1,574,207
FY14
48,559
630,571
679,130
11,706
889,325
64,228
1,644,389
1,269,522
544,856
724,666
878
380,609
158,950
1,401,345
723,394
125,517
37,045
515,389
1,022,058
751,018
271,040
379,287
1,644,389
FY15
48,559
639,764
688,323
10,733
581,541
68,356
1,348,952
1,375,223
608,119
767,104
705
403,781
160,687
1,004,677
499,174
76,448
12,211
416,845
988,001
707,229
280,773
16,676
1,348,952
FY16
48,559
711,381
759,940
14,143
508,496
96,158
1,378,737
1,725,303
667,304
1,058,000
791
226,342
156,776
977,928
420,947
86,604
20,137
450,241
1,041,100
720,006
321,094
-63,172
1,378,737
FY17E
48,559
824,494
873,053
18,008
540,000
122,734
1,553,795
2,001,377
738,330
1,263,046
791
140,268
161,445
1,072,628
531,579
89,448
22,854
428,747
1,084,384
760,374
324,010
-11,756
1,553,795
(INR Million)
FY18E
48,559
947,755
996,314
21,873
580,000
125,624
1,723,811
2,193,591
812,927
1,380,664
791
108,054
161,445
1,177,608
619,641
101,694
27,151
429,122
1,104,751
785,741
319,010
72,857
1,723,811
FY19E
48,559
1,069,639
1,118,198
22,718
540,000
128,355
1,809,271
2,360,034
890,883
1,469,151
791
101,611
161,445
1,222,279
651,240
106,069
35,469
429,501
1,146,006
826,996
319,010
76,273
1,809,271
3 January 2017
28

Thematic | Oil & Gas
Financials and Valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
P/BV
EV/Sales
EV/EBITDA
Dividend Yield (%)
FCF per share
Return Ratios (%)
RoE
RoCE
RoIC
Working Capital Ratios
Fixed Asset Turnover (x)
Asset Turnover (x)
Inventory (Days)
Debtor (Days)
Creditor (Days)
Leverage Ratio (x)
Current Ratio
Interest Cover Ratio
Net Debt/Equity
FY13
9.2
20.9
129.8
6.1
77.4
FY14
11.0
24.1
139.9
8.5
68.2
FY15
6.7
17.4
141.7
3.3
39.3
51.8
19.9
2.4
0.5
24.1
1.0
67.4
7.2
6.4
5.0
4.0
2.9
53
10
49
1.5
1.0
1.1
8.2
6.4
6.1
3.8
3.0
54
9
56
1.4
1.6
1.0
4.7
4.7
3.1
3.3
3.3
41
6
58
1.0
1.0
0.6
FY16
20.3
32.5
156.5
7.0
36.4
17.0
10.7
2.2
0.6
10.0
2.0
23.5
13.6
10.3
12.1
2.1
2.6
43
9
74
0.9
4.3
0.4
FY17E
49.3
63.9
179.8
14.5
34.5
7.0
5.4
1.9
0.6
5.6
4.2
20.3
29.3
19.8
21.6
1.8
2.3
54
9
78
1.0
10.5
0.4
FY18E
40.1
55.4
205.2
11.9
34.7
8.6
6.2
1.7
0.5
6.1
3.4
6.5
20.8
14.9
14.8
1.9
2.4
54
9
68
1.1
8.3
0.4
FY19E
41.9
57.9
230.3
12.4
34.6
8.3
6.0
1.5
0.5
5.7
3.6
26.6
19.2
14.3
14.0
1.9
2.5
52
9
66
1.1
8.6
0.3
Consolidated - Cash Flow Statement
Y/E March
OP/(Loss) before Tax
Depreciation
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
Others
CF from Operating incl EO
(Inc)/Dec in FA
Free Cash Flow
(Pur)/Sale of Investments
CF from Investments
Issue of Shares
Inc/(Dec) in Debt
Dividend Paid
Others
CF from Fin. Activity
Inc/Dec of Cash
Opening Balance
Closing Balance
FY13
45,043
56,915
-8,770
-4,001
89,187
11,851
101,038
-195,878
-94,841
1,746
-194,132
0
121,746
-34,415
9,743
97,074
3,979
8,219
12,198
FY14
99,779
63,600
-30,113
105,788
239,054
2,428
241,481
-229,606
11,876
14,549
-215,056
0
21,431
-41,277
18,268
-1,579
24,846
12,198
37,044
FY15
70,144
52,190
-19,781
338,116
440,669
4,191
444,860
-117,801
327,059
-1,564
-119,365
0
-307,784
-16,020
-26,525
-350,329
-24,834
37,044
12,211
FY16
172,586
59,185
-56,528
87,773
263,016
23,937
286,953
-172,641
114,312
3,825
-168,816
0
-73,045
-33,990
-3,176
-110,211
7,926
12,211
20,137
FY17E
331,478
71,026
-88,161
-48,698
265,646
22,711
288,357
-190,000
98,357
-4,669
-194,669
0
31,504
-70,636
-51,838
-90,971
2,717
20,137
22,854
(INR Million)
FY18E
295,113
74,597
-96,764
-80,316
192,631
-975
191,656
-160,000
31,656
0
-160,000
0
40,000
-57,647
-9,711
-27,358
4,297
22,854
27,151
FY19E
308,254
77,955
-101,052
4,902
290,059
-1,134
288,925
-160,000
128,925
0
-160,000
0
-40,000
-60,218
-20,389
-120,608
8,317
27,151
35,468
3 January 2017
29

Thematic | Oil & Gas
Bharat Petroleum
Kochi to add value, but E&P remains a concern
The INR160b Kochi refinery is expected to be commissioned by early 2017. While it
will increase GRM by USD1.5-2/bbl, we expect stabilization issues to mar its
performance in FY18.
With low oil and LNG prices, we do not expect much progress on its projects in Brazil
and Mozambique.
We value the company using SOTP at INR756.
Refining to get boost from Kochi
Kochi IREP expansion is expected to complete by early 2017. We expect it to be
stabilized in mid-FY18. This should increase the Kochi refinery’s GRM by USD1.5-
2/bbl. However, stabilization is expected to affect performance adversely in
FY18, as witnessed during commissioning of recent refinery projects in India.
We expect refining EBITDA to increase from INR53b in FY16 to INR64b in FY19.
Apart from INR40-50b on fuel upgradation, we do not see significant capex in
the refining segment over next 2-3 years.
Marketing to add INR57b of EBITDA in FY19
BPCL has been strengthening its marketing infrastructure in the south to take
advantage of higher product availability from Kochi expansion. The expansion
would help the company to take market share from HPCL in the south over next
2-3 years.
We expect marketing EBITDA of INR57b in FY19. We expect INR40-50b of capex
per year in marketing and pipeline infrastructure.
E&P remains a concern
With low LNG prices, we have seen continuous delays in Final Investment
Decision (FID) in Mozambique. The company guides for FID closure in 2017 now.
In light of the new capacities coming up, LNG prices are expected to remain low,
which would have an adverse impact on profitability of the block.
Petrobras is the operator of fields in Brazil where BPCL has stakes. Petrobras’
priority has been to come out of the recent corruption charges and improve its
corporate governance. Additionally, since debt is high, the priority is on blocks
that are either producing or ready to produce. BPCL’s participation is in blocks
that are in early stages of exploration and unlikely to commence production by
2020.
Valuation and recommendation
Global peers are trading at 10.7x FY18E EPS and 6.8x FY18E EBITDA. We value
BPCL’s refining segment at 5.5x, marketing at 8.0x, pipeline segment at 7.5x, and
add investments to arrive at a target price of INR756. We have a
Buy
rating on
the stock.
3 January 2017
30

Thematic | Oil & Gas
Story in charts
Exhibit 50: Refining throughput of BPCL
Refinery Throughput (mmt)
29.7
23.2
23.4
23.4
24.1
26.1
30.0
8.0
7.0
6.0
5.0
4.0
3.0
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
5.6
5.0
6.2
5.4
Exhibit 51: GRM trend of BPCL
BPCL GRM (USD/bbl)
Reuters Singapore GRM (US$/bbl)
Source: Company, MOSL
Source: Company, MOSL
Exhibit 52: Marketing sales volume
Marketing sales volume (mmt)
45
43
40
38
35
33
FY13
FY14
FY15
FY16
FY17E FY18E FY19E
Source: Company, MOSL
36.5
5.3
YoY (%)
43.1
3.8
8
5
3
0
-3
Exhibit 53: Pipeline throughput
Pipeline Throughput (mmt)
12
10
9
7
5
FY13
FY14
FY15
FY16
FY17E FY18E FY19E
Source: Company, MOSL
YoY (%)
1.0
0.8
0.5
0.3
0.0
Exhibit 54: Return rations
40
30
20
10
0
FY13
FY14
FY15
FY16
FY17E FY18E FY19E
Source: Company, MOSL
16.8
20.6
15.0
10.9
RoE
ROCE
Exhibit 55: Debt and interest burden
250,000
200,000
150,000
100,000
50,000
0
FY13
FY14
FY15
FY16 FY17E FY18E FY19E
Source: Company, MOSL
18,252
7,500
102,399
Net debt (INRm)
212,379
Interest
3 January 2017
31

Thematic | Oil & Gas
Exhibit 56: EBITDA growth and margins
EBITDA YoY (%)
45
30
15
2.9
0
-15
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
Source: Company, MOSL
30.0
EBITDA Margins (%)
Exhibit 57: PAT growth and margins
PAT YoY (%)
120
90
5.6
4.0
60
30
0
FY13
FY14
FY15
FY16
FY17E FY18E FY19E
Source: Company, MOSL
1.1
6.5
101.6
PAT Margins (%)
5
3.8
4
3
1
0
Exhibit 58: P/E valuation chart
35
27
19
11
3
11.4
4.6
9.2
PE (x)
Peak(x)
Avg(x)
Min(x)
28.3
Exhibit 59: EV/EBITDA valuation charts
EV/EBDITA(x)
13
10
7
4
1
5.1
1.5
4.2
10.0
Peak(x)
Avg(x)
Min(x)
Source: Company, MOSL
Source: Company, MOSL
Exhibit 60: Valuation
Valuation
Refining
Marketing
Pipeline
Others
Total
Net debt
Oil bonds
Net debt excluding oil bonds
Valuation of standalone
Stake in IGL (INR)
Stake in Petronet (INR)
Stake in Oil India (INR)
Stake in Numaligarh (INR)
Stake in Bina (INR)
Others (INR)
BM-C-30 (INR)
BM-SEAL-11 (INR)
Rovuma Basin (INR)
Total value (INR)
EBITDA (INR m)
63,454
56,643
9,464
2,495
EV/EBITDA (x)
5.5
8.0
7.5
5.0
Value (INR m)
348,997
453,143
70,979
12,475
885,594
131,285
40,088
91,197
549
16
0
3
25
3
35
3
46
76
756
Source: Company, MOSL
3 January 2017
32

Thematic | Oil & Gas
Financials and Valuations
Consolidated - Income Statement
Y/E March
Total Income from Operations
Change (%)
RM & Other Expenses
Finished Gds Purchase
Other Oper. Expenses
Total Expenditure
% of Sales
EBITDA
Margin (%)
Depreciation
EBIT
Int. and Finance Charges
Other Income
PBT bef. EO Exp.
PBT after EO Exp.
Total Tax
Tax Rate (%)
Minority Interest
Reported PAT
Adjusted PAT
Change (%)
Margin (%)
FY13
2,421,810
14.2
1,191,085
1,023,115
140,888
2,355,088
97.2
66,722
2.8
24,627
42,095
25,183
15,290
32,202
32,202
12,841
39.9
553
18,808
18,808
140.9
0.8
FY14
2,644,066
9.2
1,320,642
1,070,857
158,977
2,550,477
96.5
93,590
3.5
26,109
67,480
19,821
13,998
61,657
61,657
21,127
34.3
1,423
39,107
39,107
107.9
1.5
FY15
2,424,188
-8.3
1,153,180
938,728
236,301
2,328,209
96.0
95,978
4.0
30,267
65,712
11,805
22,998
76,905
76,905
26,085
33.9
2,754
48,066
48,066
22.9
2.0
FY16
1,884,479
-22.3
739,419
774,855
228,112
1,742,385
92.5
142,093
7.5
24,286
117,807
11,321
19,453
125,939
125,939
41,299
32.8
4,825
79,815
79,815
66.1
4.2
FY17E
1,843,983
-2.1
786,748
754,109
160,998
1,701,855
92.3
142,128
7.7
24,147
117,981
9,820
23,125
131,287
131,287
46,205
35.2
4,825
80,257
80,257
0.6
4.4
(INR Million)
FY18E
2,182,278
18.3
1,119,298
741,307
171,318
2,031,922
93.1
150,356
6.9
27,173
123,184
12,078
25,212
136,317
136,317
50,028
36.7
4,825
81,465
81,465
1.5
3.7
FY19E
2,275,053
4.3
1,152,340
792,949
175,374
2,120,663
93.2
154,390
6.8
27,016
127,374
11,881
28,168
143,661
143,661
52,399
36.5
4,825
86,436
86,436
6.1
3.8
Consolidated - Balance Sheet
Y/E March
Equity Share Capital
Total Reserves
Net Worth
Minority Interest
Total Loans
Deferred Tax Liabilities
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Goodwill on Consolidation
Capital WIP
Total Investments
Curr. Assets, Loans&Adv.
Inventory
Account Receivables
Cash and Bank Balance
Loans and Advances
Curr. Liability & Prov.
Account Payables
Provisions
Net Current Assets
Appl. of Funds
E: MOSL Estimates
FY13
14,462
153,294
167,755
10,766
328,604
16,059
523,184
437,803
198,173
239,630
7,584
74,633
74,698
399,112
199,567
43,551
28,498
127,497
272,473
240,795
31,678
126,639
523,184
FY14
14,462
179,801
194,263
11,603
327,985
12,511
546,362
490,974
222,858
268,115
7,684
93,717
69,853
448,233
231,695
45,437
23,113
147,988
341,241
299,307
41,934
106,992
546,362
FY15
14,462
211,023
225,485
12,998
210,177
13,468
462,128
536,605
251,399
285,207
5,888
157,873
77,118
336,979
174,000
29,484
34,463
99,033
400,937
344,770
56,166
-63,958
462,128
FY16
14,462
265,735
280,197
15,866
266,268
19,769
582,101
592,662
273,671
318,991
6,247
221,188
77,363
308,625
154,969
24,235
46,290
83,131
350,313
299,161
51,152
-41,689
582,101
FY17E
14,462
318,455
332,916
15,866
266,000
25,241
640,023
669,600
301,860
367,741
610
252,625
77,363
287,724
152,755
23,889
31,173
79,907
346,040
294,887
51,152
-58,315
640,023
(INR Million)
FY18E
14,462
372,116
386,577
15,866
260,000
25,241
687,684
834,600
331,944
502,657
610
170,536
77,363
339,750
182,381
28,272
49,190
79,907
403,232
352,079
51,152
-63,482
687,684
FY19E
14,462
428,916
443,378
15,866
236,000
25,241
720,484
874,600
366,128
508,473
610
197,704
77,363
354,943
190,346
29,474
55,216
79,907
418,608
367,456
51,152
-63,666
720,484
3 January 2017
33

Thematic | Oil & Gas
Financials and Valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
P/BV
EV/Sales
EV/EBITDA
Dividend Yield (%)
FCF per share
Return Ratios (%)
RoE
RoCE
RoIC
Working Capital Ratios
Fixed Asset Turnover (x)
Asset Turnover (x)
Inventory (Days)
Debtor (Days)
Creditor (Days)
Leverage Ratio (x)
Current Ratio
Interest Cover Ratio
Net Debt/Equity
FY13
13.0
30.0
116.0
6.0
53.8
FY14
27.0
45.1
134.3
17.0
73.6
FY15
33.2
54.2
155.9
11.2
40.0
19.7
12.1
4.2
0.5
11.7
1.7
107.6
11.5
7.2
7.3
5.5
4.6
30
7
36
1.5
1.7
1.3
21.6
10.5
12.6
5.4
4.8
32
6
41
1.3
3.4
1.2
22.9
12.2
15.7
4.5
5.2
26
4
52
0.8
5.6
0.4
FY16
55.2
72.0
193.8
15.5
33.0
11.8
9.1
3.4
0.6
8.2
2.4
-12.2
31.6
18.8
36.8
3.2
3.2
30
5
58
0.9
10.4
0.5
FY17E
55.5
72.2
230.2
16.3
34.3
11.8
9.1
2.8
0.6
8.3
2.5
8.8
26.2
16.0
29.6
2.8
2.9
30
5
58
0.8
12.0
0.5
FY18E
56.3
75.1
267.3
16.4
34.1
11.6
8.7
2.4
0.5
7.7
2.5
35.8
22.6
15.1
23.3
2.6
3.2
31
5
59
0.8
10.2
0.3
FY19E
59.8
78.4
306.6
17.5
34.3
10.9
8.3
2.1
0.5
7.3
2.7
41.3
20.8
14.9
20.7
2.6
3.2
31
5
59
0.8
10.7
0.2
Consolidated - Cash Flow Statement
Y/E March
OP/(Loss) before Tax
Depreciation
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
Others
CF from Operating incl EO
(Inc)/Dec in FA
Free Cash Flow
(Pur)/Sale of Investments
CF from Investments
Issue of Shares
Inc/(Dec) in Debt
Dividend Paid
Others
CF from Fin. Activity
Inc/Dec of Cash
Opening Balance
Closing Balance
FY13
32,203
24,627
-12,841
-15,790
28,198
-591
27,607
-51,249
-23,642
4,208
-47,041
0
44,788
-10,119
0
34,669
15,235
13,263
28,498
FY14
61,657
26,109
-21,127
14,262
80,901
11,896
92,797
-73,645
19,152
4,845
-68,800
0
-618
-28,763
0
-29,381
-5,385
28,498
23,113
FY15
76,905
30,267
-26,085
182,299
263,386
2,101
265,487
-109,852
155,635
-7,265
-117,117
0
-117,808
-19,212
0
-137,021
11,349
23,113
34,462
FY16
125,939
24,286
-41,299
-7,218
101,709
11,039
112,747
-130,441
-17,694
-245
-130,686
0
56,091
-26,326
0
29,766
11,827
34,462
46,289
FY17E
131,287
24,147
-46,205
-1,714
107,515
-4,825
102,690
-90,000
12,690
0
-90,000
0
-268
-27,538
0
-27,806
-15,116
46,289
31,173
(INR Million)
FY18E
136,317
27,173
-50,028
23,183
136,645
-4,825
131,820
-80,000
51,820
0
-80,000
0
-6,000
-27,804
0
-33,804
18,017
31,173
49,190
FY19E
143,661
27,016
-52,399
6,209
124,486
-4,825
119,662
-60,000
59,662
0
-60,000
0
-24,000
-29,636
0
-53,636
6,025
49,190
55,215
3 January 2017
34

Thematic | Oil & Gas
Hindustan Petroleum
Huge capex of INR100b in each of next 2-3 years
To bridge the gap between refining and marketing, the company is expanding its Vizag
refinery capacity from 8.3mmtpa to 15mmtpa at a capex of INR210b.
We expect negative cash flow of INR102/share over FY17-19, which is expected to
increase net debt:equity from 0.2x in FY16 to 0.7x in FY19.
We value the company using SOTP at INR543.
Capex of INR100b in each of next three years
Considering the upcoming INR210b Vizag expansion, INR40-50b for BS-VI
upgradation and investment on marketing/pipeline infrastructure, we expect
capex outflow of INR100b in each of next three years.
We expect net debt to rise from INR145b in FY16 to INR299b in FY19.
Bhatinda turns around
Bhatinda refinery recorded PAT of INR15.5b in 1HFY17. It is expected to report
good performance in 3QFY17 too with higher refining margins and inventory
gains.
At 49% stake, Bhatinda refinery adds INR31 to the valuation of HPCL.
Market share could decline
Both BPCL (via Kochi expansion) and IOCL (via Paradip commissioning) have
ramped up their marketing infrastructure in the south. We expect this may
result in market share loss for HPCL in the south till Vizag expansion comes into
play.
We expect marketing EBITDA of INR57b in FY19.
Valuation and recommendation
Global peers are trading at 10.7x FY18E EPS and 6.8x FY18E EBITDA. HPCL is
trading at 9.9x FY18E EPS and 7.6x FY18E EBITDA.
We value HPCL’s refining segment at 5x, marketing at 8x, pipeline at 7.5x and
add investments to arrive at a target price of INR543 for the stock. We have a
Buy
rating on the stock.
3 January 2017
35

Thematic | Oil & Gas
Story in charts
Exhibit 61: Refining throughput of HPCL
Refinery Throughput (mmt)
17.2
16.5
16.2
15.8
15.5
2.0
0.0
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
FY13
FY14
FY15
FY16
FY17E FY18E FY19E
Source: Company, MOSL
16.0
16.0
8.0
6.0
4.0
2.1
5.6
5.4
5.0
Exhibit 62: GRM trend of HPCL
HPCL GRM (USD/bbl)
Reuters Singapore GRM (US$/bbl)
Source: Company, MOSL
Exhibit 63: Marketing sales volume
Marketing sales volume (mmt)
48
36
24
12
0
FY13
FY14
FY15
FY16
FY17E FY18E FY19E
Source: Company, MOSL
30.3
2.8
YoY (%)
38.3
4.0
7
6
4
3
1
0
Exhibit 64: Pipeline throughput
Pipeline Throughput (mmt)
25
20
15
10
5
0
FY13
FY14
FY15
FY16 FY17E FY18E FY19E
Source: Company, MOSL
3.2
14.1
YoY (%)
20.0
24
16
8
0
-8
Exhibit 65: Return rations
32
24
16
8
0
6.7
4.6
FY13
FY14
FY15
FY16
FY17E
FY18E
8.7
FY19E
RoE
ROCE
Exhibit 66: Debt and interest burden
Net debt (INRm)
400,000
18.0
300,000
200,000
100,000
0
FY13 FY14 FY15 FY16 FY17E FY18E FY19E
Source: Company, MOSL
Source: Company, MOSL
323,111
20,193
9,000
Interest
24,000
299,210
18,000
12,000
6,000
0
3 January 2017
36

Thematic | Oil & Gas
Exhibit 67: EBITDA growth and margins
EBITDA YoY (%)
45
30
15
0
-15
FY13
FY14
FY15
FY16 FY17E FY18E FY19E
Source: Company, MOSL
6.9
2.1
4.8
EBITDA Margins (%)
5.0
6
5
3
2
0
Exhibit 68: PAT growth and margins
PAT Margins (%)
3.8
3.0
2.3
1.5
0.8
0.0
0.4
FY13
FY14
FY15
FY16 FY17E FY18E FY19E
Source: Company, MOSL
(0.7)
2.3
2.3
PAT YoY (%)
100
75
50
25
0
-25
Exhibit 69: P/E valuation chart
28
23
18
13
8
3
9.1
8.9
PE (x)
Peak(x)
Avg(x)
Min(x)
24.6
Exhibit 70: EV/EBITDA valuation charts
EV/EBDITA(x)
16
12
8
4
0
6.6
1.1
4.0
Peak(x)
Avg(x)
12.7
Min(x)
Source: Company, MOSL
Source: Company, MOSL
Exhibit 71: Valuation
Valuation
Refining
Marketing
Pipeline
Others
Total
Net debt (FY18)
Oil bonds
Net debt excluding oil bonds (FY18)
Standalone valuation
Value per share (INR)
Stake in MRPL (INR)
Stake in Oil India (INR)
Stake in HMEL (INR)
Total value (INR)
EBITDA (INR m)
25,658
56,784
13,213
3,861
EV/EBITDA (x)
5
8
7.5
5
Valuation (INR m)
128,288
454,272
99,100
19,307
700,968
264,141
49,857
214,285
486,683
479
31
2
31
543
Source: Company, MOSL
3 January 2017
37

Thematic | Oil & Gas
Financials and Valuations
Standalone - Income Statement
Y/E March
Net Sales
Change (%)
Finished Goods
Raw Materials Cons
Other Exp
Total Expenditure
% of Sales
EBITDA
Margin (%)
Depreciation
EBIT
Int. and Finance Charges
Other Income
PBT bef. EO Exp.
EO Items
PBT after EO Exp.
Total Tax
Tax Rate (%)
Reported PAT
Adjusted PAT
Change (%)
Margin (%)
FY13
2,065,293
15.9
1,281,786
639,921
104,163
2,025,869
98.1
39,424
1.9
19,315
20,109
18,377
12,300
14,032
714
14,746
5,699
38.6
9,047
9,047
-0.7
0.4
FY14
2,231,454
8.0
1,451,380
613,881
114,112
2,179,372
97.7
52,081
2.3
21,884
30,197
15,046
11,004
26,155
0
26,155
8,817
33.7
17,338
17,338
91.6
0.8
FY15
2,063,804
-7.5
1,292,784
599,079
117,765
2,009,627
97.4
54,176
2.6
19,712
34,465
7,066
14,142
41,541
0
41,541
14,209
34.2
27,333
27,333
57.6
1.3
FY16
1,792,811
-13.1
1,159,484
407,012
150,146
1,716,643
95.8
76,168
4.2
26,668
49,500
6,401
14,282
57,381
0
57,381
18,753
32.7
38,627
38,627
41.3
2.2
FY17E
1,733,622
-3.3
1,127,380
382,267
123,221
1,632,868
94.2
100,754
5.8
27,268
73,486
5,373
13,273
81,387
0
81,387
27,767
34.1
53,619
53,619
38.8
3.1
(INR Million)
FY18E
1,922,437
10.9
1,212,306
486,589
128,623
1,827,519
95.1
94,918
4.9
29,087
65,831
7,500
10,518
68,849
0
68,849
22,947
33.3
45,901
45,901
-14.4
2.4
FY19E
2,001,869
4.1
1,268,476
500,492
133,384
1,902,352
95.0
99,516
5.0
31,087
68,429
9,000
10,974
70,403
0
70,403
23,465
33.3
46,938
46,938
2.3
2.3
Standalone - Balance Sheet
Y/E March
Equity Share Capital
Total Reserves
Net Worth
Total Loans
Deferred Tax Liabilities
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Capital WIP
Total Investments
Curr. Assets, Loans&Adv.
Inventory
Account Receivables
Cash and Bank Balance
Loans and Advances
Curr. Liability & Prov.
Account Payables
Provisions
Net Current Assets
Appl. of Funds
E: MOSL Estimates
FY13
10,170
127,094
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
163,754
264,617
241,622
22,995
114,345
497,830
FY14
10,170
139,951
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
119,444
267,275
243,978
23,296
94,930
508,506
FY15
10,170
150,051
160,221
170,556
41,036
371,813
481,749
191,121
290,628
34,744
112,415
237,719
129,723
36,031
171
71,796
303,693
273,903
29,790
-65,974
371,813
FY16
10,170
174,994
185,165
145,220
48,105
378,490
541,493
217,789
323,705
30,000
109,947
241,865
127,091
42,296
1,483
70,995
327,027
305,459
21,568
-85,162
378,490
FY17E
10,170
208,164
218,335
230,000
48,105
496,439
561,749
243,296
318,453
77,506
109,947
212,200
107,367
26,123
5,531
73,180
221,667
203,549
18,118
-9,467
496,439
(INR Million)
FY18E
10,170
237,933
248,103
270,000
48,105
566,208
601,749
272,383
329,366
137,506
109,947
238,730
120,166
31,602
5,859
81,104
249,341
230,317
19,024
-10,611
566,208
FY19E
10,170
268,373
278,543
330,000
48,105
656,648
641,749
303,471
338,278
197,506
109,947
270,640
125,086
32,907
32,727
79,920
259,724
239,749
19,975
10,917
656,648
3 January 2017
38

Thematic | Oil & Gas
Financials and Valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
P/BV
EV/Sales
EV/EBITDA
Dividend Yield (%)
FCF per share
Return Ratios (%)
RoE
RoCE
RoIC
Working Capital Ratios
Asset Turnover (x)
Debtor (Days)
Leverage Ratio (x)
Net Debt/Equity
FY13
8.9
27.9
135.0
2.8
37.2
FY14
17.0
38.6
147.6
5.2
35.4
FY15
26.9
46.3
157.5
8.2
36.5
17.3
10.0
2.9
0.3
11.9
1.8
166.8
6.7
4.5
3.8
4.1
9
1.6
12.1
5.9
5.8
4.4
9
1.4
17.6
8.0
7.8
5.6
6
0.4
FY16
38.0
64.2
182.1
11.5
36.4
12.2
7.2
2.5
0.3
8.1
2.5
37.8
22.4
13.0
14.4
4.7
9
0.2
FY17E
52.7
79.5
214.7
15.8
35.1
8.8
5.8
2.2
0.4
6.9
3.4
-59.6
26.6
14.7
17.9
3.5
6
0.5
FY18E
45.1
73.7
243.9
13.6
35.1
10.3
6.3
1.9
0.4
7.8
2.9
-23.1
19.7
10.5
14.2
3.4
6
0.6
FY19E
46.2
76.7
273.9
13.9
35.1
10.1
6.0
1.7
0.4
7.7
3.0
-16.4
17.8
9.4
14.5
3.0
6
0.7
Standalone - Cash Flow Statement
Y/E March
OP/(Loss) before Tax
Depreciation
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
Others
CF from Operating incl EO
(Inc)/Dec in FA
Free Cash Flow
(Pur)/Sale of Investments
CF from Investments
Inc/(Dec) in Debt
Dividend Paid
Others
CF from Fin. Activity
Inc/Dec of Cash
Opening Balance
Closing Balance
FY13
14,746
19,344
-5,699
-34,913
-6,522
5,131
-1,391
-43,619
-45,010
-2,564
-46,183
49,790
-3,368
359
46,782
-792
2,264
1,471
FY14
26,155
21,884
-8,817
18,291
57,513
3,101
60,614
-49,647
10,968
-2,329
-51,976
-5,282
-6,141
1,661
-9,762
-1,124
1,471
347
FY15
41,541
19,712
-14,209
160,727
207,771
1,952
209,723
-40,106
169,617
-3,816
-43,922
-148,744
-9,985
-7,248
-165,977
-176
347
171
FY16
57,800
26,668
-18,912
20,341
85,896
7,069
92,965
-54,523
38,442
3,754
-50,769
-25,336
-14,061
-1,487
-40,884
1,312
171
1,483
FY17E
81,387
27,268
-27,767
-71,487
9,400
0
9,400
-70,000
-60,600
-1,286
-71,286
84,780
-18,846
0
65,934
4,048
1,483
5,531
(INR Million)
FY18E
68,849
29,087
-22,947
1,472
76,461
0
76,461
-100,000
-23,539
0
-100,000
40,000
-16,133
0
23,867
328
5,531
5,859
FY19E
70,403
31,087
-23,465
5,340
83,365
0
83,365
-100,000
-16,635
0
-100,000
60,000
-16,497
0
43,503
26,868
5,859
32,727
3 January 2017
39

THEMATIC GALLERY
SECTOR RESEARCH
SECTOR RESEARCH
SECTOR RESEARCH

Thematic | Oil & Gas
NOTES
3 January 2017
41

Disclosures
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Thematic | Oil
by it
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its
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3 January 2017
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