JP Morgan puts 'neutral' on Essar Oil
Essar Oil is emerging as an integrated player across the energy chain with value-creation options in refining and upstream.
By ET Bureau |
CMP: Rs 140
Essar Oil is emerging as an integrated player across the energy chain with value-creation options in refining and upstream. While the competitive position in refining could be advantageous in the current environment, further value-unlocking through low-cost refinery expansion and the development of Ratna fields are likely to be contingent on funding and government approvals.
ESOIL is upgrading its 10.5-mmtpa refinery to 16 mmtpa, adding significant secondary processing capacities. The expansion would give ESOIL significant advantages in: (1) complexity-allowing ESOIL to process a tougher crude diet (API 24.8), enabling better gross refining margins (GRMs); and (2) competitive cost structure-an operating expenditure of about $2/bbl versus $4-5/bbl for western peers.
By H1CY10, ESOIL will begin to monetise its CBM asset at Raniganj-this will deliver significant revenue and value to ESOIL. The price target of Rs 160 is based on 7x EV/EBTIDA for the 16-mmtpa refinery, net present value for Raniganj, and the value of tax incentives. JP Morgan assumes option values for refinery expansion (50% value accretion) and Ratna field (50%).
Essar Oil is emerging as an integrated player across the energy chain with value-creation options in refining and upstream. While the competitive position in refining could be advantageous in the current environment, further value-unlocking through low-cost refinery expansion and the development of Ratna fields are likely to be contingent on funding and government approvals.
ESOIL is upgrading its 10.5-mmtpa refinery to 16 mmtpa, adding significant secondary processing capacities. The expansion would give ESOIL significant advantages in: (1) complexity-allowing ESOIL to process a tougher crude diet (API 24.8), enabling better gross refining margins (GRMs); and (2) competitive cost structure-an operating expenditure of about $2/bbl versus $4-5/bbl for western peers.
By H1CY10, ESOIL will begin to monetise its CBM asset at Raniganj-this will deliver significant revenue and value to ESOIL. The price target of Rs 160 is based on 7x EV/EBTIDA for the 16-mmtpa refinery, net present value for Raniganj, and the value of tax incentives. JP Morgan assumes option values for refinery expansion (50% value accretion) and Ratna field (50%).
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