Essar Oil plans to complete its refinery expansion from the current 10.5 million tonne to 18 million tonne by December 2011 and start commercial operations by March 2012. This will not only bring in a substantial volumes growth, but also improve its margins. The higher complexity planned under this expansion will enable it to process lower quality crude oils to produce premium quality fuels. The company also commenced test sales from its coal-bed-methane block in Raniganj at $6.25 per million BTU. Both these developments will make sure that the company earns substantially higher profits and cash flows from FY13 onwards. This is essential for the company, which has seen its mountain of debt rise consistently over the past few years to . 21,290 crore at end-September ’11, which is 3.1 times its equity. As the commissioning date of major projects nears, a number of broking houses have turned bullish on the company. “Essar Oil’s phase I expansion project is on track for completion by CY11-end and should be a key driver of superior GRMs and profitability, going forward. The expansion would also increase Essar’s complexity to 11.8 from 6.1 currently, making it the second-most complex refiner in India after RIL,” mentioned a recent Citigroup research report. In the September ’11 quarter, the company was able to maintain its high capacity utilisation and posted a revenue growth of 19% at . 13,026 crore. However, forex losses of . 407 crore impacted its margins and lowered profits. The company is carrying foreign currency convertible bonds of $262 million issued to its parent company.
The weak results impacted the scrip, which lost 3.6% to close at . 83.75. The scrip has continually underperformed losing over 45% over the past one year against a 14% fall in the BSE Sensex. The scrip trades at 12 times its earnings for the past 12 months, which is slightly lower than RIL’s, and could generate higher returns once its projects commission.
No comments:
Post a Comment