Goldman Sachs initiates 'Buy' Rating on Essar Oil

MUMBAI: Goldman Sachs has initiated a 'Buy' rating on Essar Oil, India's second-largest private refiner.

“Essar Oil has significant leverage to our expectation of a strong refining upcycle, we forecast volume growth from the just-completed (Vadinar) refinery expansion (18mtpa from 14mtpa) combined with structural and cyclical improvements in GRMs to result in earnings growth significantly higher than Asian peers, ” said Goldman Sachs.

“We also expect strong operating cashflows to strengthen Essar's balance sheet, helping reduce net debt:equity ratio to 1.1X by end FY14E from 2.8X currently,” the report added.

According to Goldman Sachs, the catalyst for this performance is the ramp-up in its Vadinar refinery throughput to 18mtpa within the next four to six weeks leading to a 30% volume rise in FY13.

Goldman also said that the commencement of full-fledged commercial coal-bed methane sales from its Raniganj block during FY13 and exit from corporate debt restructuring and a successful equity issuance are some other catalysts that may likely play out during FY13 for Essar Oil.