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MOSL: GASOLINE - The oil & gas monthly - December 2013




Motilal Oswal Securities Ltd.


10 Dec 2013





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GASOLINE: The oil & gas monthly – December 2013 SUMMARY - November 2013 Special Reports: (a) Call with Anadarko, (b) Sector update, (c) Indian Petchem 2013 conference, (d) Petroleum Minister meeting takeaways (e) Iran nuclear deal and (f) Result updates – ONGC and Oil India. Monthly Highlights Under recoveries stable; Diesel under recovery still high at ~INR10/ltr Brent averaged USD108/bbl (-1% MoM) led by easing of geo political concerns in Iran and increased supplies. MTM under recoveries eased marginally to ~INR1.5t. Diesel demand (refer slide 17) continues to shows signs of elasticity. Diesel reforms continue with 12 price hikes since Jan-13 (~INR6.6/ltr, 13%) till-date. Reuters Singapore GRM up 9.5% MoM to USD3.9/bbl GRM at USD3.9/bbl in Nov-13, was up 9.5% MoM primarily due to strong autofuel cracks. 3QFY14 avg stood at USD3.7/bbl v/s USD5.4/bbl in 2QFY14 and USD7.7/bbl in FY13. Polymer and Polyester margins down MoM Domestic polymer prices eased 1-5% MoM during November primarily due to sluggish demand. Polymer spreads over Naphtha were down MoM in the range of 7-38%, while polyester spreads were down by ~12% MoM. Valuation and view In event of likely diesel deregulation in 12-18 months, and notification of gas price hike in coming weeks, we prefer ONGC/OINL in upstream (significant earnings growth opportunity) and BPCL in OMC‘s (strong balance sheet and E&P potential). Maintain Neutral on Gail due to headwinds for gas availability, however believe PLNG is available at attractive valuation given its medium term earnings potential. Maintain Buy on Cairn India for its attractive valuation and Neutral on RIL as the next earnings growth is still some time away when its new core-business/E&P projects commission from FY16/FY17.

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