Motilal Oswal - MOSL: OIL GAS: Media reports: OMCs to absorb INR1/liter on auto fuels; Expect adverse impact of 2-4% on EBITDA

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Motilal Oswal

Swarnendu Bhushan

MOSL: OIL & GAS: Media reports: OMCs to absorb INR1/liter on auto fuels; Expect adverse impact of 2-4% on EBITDA

Oil & Gas: Media reports: OMCs to absorb INR1/liter on auto fuels; Expect adverse impact of 2-4% on EBITDA; reiterate Buy

According to a CNBC flash, it appears that the government has asked the OMCs to absorb INR1/liter on auto fuels.
It may be recalled that after a dismal 3QFY18, the OMCs had raised their marketing margins to INR3.2/liter on petrol and INR3.4/liter on diesel, much higher than INR2.7-2.8/liter in FY17.
If indeed the OMCs have to absorb INR1/liter, their gross marketing margins on auto fuels would decrease to INR2.2-2.4/liter.
In our FY19 estimates, we have already considered pragmatic gross margins of INR2.5/liter, which means an impact of INR0.1-0.3/liter on our base case assumption, implying 2-4% adverse impact on EBITDA.

Our view

We do not expect much impact, unless this is magnified further. We believe oil prices have spiked due to temporary geopolitics and should decline, providing relief to the OMCs. We reiterate Buy, with a target price of INR261 for IOCL, INR554 for BPCL, and INR536 for HPCL.

11/04/2018 4 EN

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Motilal Oswal

Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.

Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.

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Analysts

Swarnendu Bhushan

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MOSL: OIL & GAS: Media reports: OMCs to absorb INR1/liter on auto fuels; Expect adverse impact of 2-4% on EBITDA

MOSL : HOME FIRST FINANCE COMPANY: Earnings in-line with sustained improvement in asset quality

MOSL : SHOPPERS STOP: Ticking the right boxes

MOSL : ERIS LIFESCIENCES: Enhanced efforts toward product launch-related activities

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