This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Oil & Gas: Crude oil up, GRMs down Crude prices: Brent has jumped 11% QoQ and 48% YoY to USD 74.5/bbl
in 1QFY19. We expect inventory gains of ~USD 1.1 to 4/bbls) to downstream companies.
GRM: Singapore complex GRM was USD 5.8/bbl (-17% QoQ, -9.4% YoY) in 1QFY19. Weakness in margins of Gasoline, Naphtha and LPG will be offset by steady margins for middle distillates. Higher utilisation of complex refineries (Paradeep, Kochi, RIL) during the quarter will arrest the sharp fall in GRMs for IOC, BPCL, and RIL.
Downstream: OMCs did not pass on the full impact of rising oil prices in 1QFY19 to auto fuel consumers (likely on account of state elections), compressing marketing margins by ~19% QoQ. However, inventory gains due to higher crude oil prices could offset the negative impact of lower marketing margins and lower GRMs.
Upstream players: We expect ONGC and OIL to report 41% and 47% YoY increase in EBITDA driven by, increase in crude oil price, weaker rupee and increase in domestic gas price. We have not factored in subsidy sharing by upstream companies.
RIL: We expect GRM of USD 10.8/bbl during the quarter from USD 11/bbl in 4QFY18. Standalone PAT to increase by 6.1% YoY to Rs 86.96bn. Impact from lower GRM will be mitigated by higher petchem volumes and weaker rupee.
Gas players: IGL: 10.4% YoY volume growth led by 12% growth from PNG
segment. We expect margin contraction due to delay in price revision to compensate for depreciation of rupee during the quarter. EBITDA margin of Rs 5.8/scm (-50bps YoY and -20bps QoQ).
MGL: 8.5% YoY volume growth led by 10.7% volume growth from Domestic PNG segment. We expect EBITDA margin of Rs 7.4/scm.
Petronet LNG: We expect 15.3% YoY increase in volumes to 221tbtu. Dahej and Kochi regasification charges are Rs 47/mmbtu and Rs 79.2/mmbtu respectively.
GAIL: We expect 34% QoQ jump in EBITDA owing to higher contribution from petchem, marketing and transmission segment.
Source: Bloomberg, Industry reports, HDFC sec Inst Research
1QFY19E: Chemicals: Margin pressure imminent Average quarterly Crude Oil/ bl (USD/bl) Price movement
Average quarterly USD/INR movement
Source: Bloomberg, HDFC Sec Inst Research
As the Chinese environmental authorities continue to clamp down non-
compliant chemical facilities, Indian chemical manufacturers get an
unabating support of the prevailing global dynamics. While the ‘China to
India’ play for Chemical companies has sustained till now, commodity
prices (Caustic soda, Phthalic Anhydride, TDI, Phenol, Acetone etc) have
started to cool off with an improvement in the global supply situation.
As realizations for key chemical building blocks are wearing off, a higher
crude oil price too is likely to add to the pressure as rising prices
hydrocarbon feedstocks (key RM for chemical manufacturers) could
potentially dent gross margins. 1Q’19 average Crude Oil prices are up
48.7% YoY and 11.2% QoQ to 74.6 USD/bl.
On a brighter side, a depreciating rupee bodes well for export focused
companies and is likely to benefit Navin Fluorine (~45% exports) and
Vinati Organics (~75% exports). The average 1Q’19 rupee against the
dollar has depreciated by 3.9% YoY and 4.1% QoQ.
We believe, Vinati Organics and Alkyl Amines are likely to be the best
performers under our chemicals coverage. Lubrizol’s complete exit
from the ATBS market is a key positive for Vinati Organics (expected to
increase market share from 45% to 65% in ATBS). Alkyl Amines is
expected to benefit from the commencement of commercial sales from
its recently commissioned Methyl Amine plant in Dahej.
Balaji Amines has aggressive capex plans of ~Rs 3.0 bn for its Mega
project in Solapur whose benefits could be visible from FY21. Navin
Fluorine’s cGMP CRAMS facility in Dewas is likely to be commissioned by
the end of 1HFY19 and are expected to add Rs 2.3 bn at peak utilisation.
61.0
62.0
63.0
64.0
65.0
66.0
67.0
68.0
1QFY
16
2QFY
16
3Q
FY
16
4QFY
16
1Q
FY
17
2QFY
17
3QFY
17
4QFY
17
1QFY
18
2QFY
18
3QFY
18
4QFY
18
1QFY
19
30.0
35.0
40.0
45.0
50.0
55.0
60.0
65.0
70.0
75.0
80.0
1QFY
16
2QFY
16
3Q
FY
16
4QFY
16
1Q
FY
17
2QFY
17
3QFY
17
4QFY
17
1QFY
18
2QFY
18
3QFY
18
4QFY
18
1QFY
19
9
1QFY19E RESULTS PREVIEW
1QFY19E: Vinati and Alkyl likely to outperform
COMPANY 1QFY19E
OUTLOOK WHAT’S LIKELY KEY MONITORABLES
Alkyl Amines GOOD
AACL may not be able to sustain a 23.2% EBITDA margin (which was recorded in 4QFY18), however we believe AACL will be able to post a 20.1% EBITDA margin owing to an efficient pass through model.
We expect a faster than expected ramp up of Methyl Amines facility.
Ramping up of Methyl Amine plant in Dahej.
Entry into niche derivatives and value added products.
Balaji Amines AVERAGE
Balaji Amines is expected to grow Sales/EBITDA/PAT by 20.0/21.2/28.0% respectively in 1Q’19 owing to higher sales coming from DMAC,DMF and DMA-HCL.
We expect EBITDA margins to be flattish at 20.5%.
Prices of Methanol, Ammonia and Ethanol.
Anti Dumping duty on Dimethylformamide(DMF) and ramp up in DMF utilization.
Execution of Mega status project which is expected to come on stream by FY21E.
Navin Fluorine International
AVERAGE
NFIL's 1QFY19 results may not be comparable on a YoY basis as the revenues from the Dahej unit (now transferred to JV) are present in the base (which will look inflated).
We expect CRAMS BU to generate Rs 610mn, while Refrigerants sales are likely to perform well owing to seasonality.
Commissioning of new cGMP CRAMS facility in Dewas.
Fluorspar prices.
Vinati Organics GOOD
Vinati Organics is expected to post a Sales/EBITDA/PAT growth of 24.7/34.3/43.2% YoY in 1Q’19 on the back of higher sales from ATBS.
Vinati Organics is expected to de-bottleneck its ATBS capacity by Sept'19.
Start up date of Para Amino Phenol (PAP).
BASF's Ibuprofen plant status, which is currently being shut down due to technical difficulties.
Start up date of Butylated Phenols project.
10
1QFY19E RESULTS PREVIEW
1QFY19E: Financial Summary
COMPANY NET SALES (Rs bn) EBITDA (Rs bn) EBITDA Margin (%) APAT (Rs bn) Adj. EPS (Rs/sh)
Disclosure: We, Nilesh Ghuge, MMS, Archit Joshi, MBA & Basanth Patil, MBA authors and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest. Any holding in stock – No Disclaimer: This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject HDFC Securities Ltd or its affiliates to any registration or licensing requirement within such jurisdiction. If this report is inadvertently send or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. This document may not be reproduced, distributed or published for any purposes without prior written approval of HDFC Securities Ltd . Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. HDFC Securities Ltd may from time to time solicit from, or perform broking, or other services for, any company mentioned in this mail and/or its attachments. HDFC Securities and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. HDFC Securities Ltd, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. HDFC Securities Ltd and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report, or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report. HDFC Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. HDFC Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction in the normal course of business. HDFC Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither HDFC Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. HDFC Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have not received any compensation/benefits from the subject company or third party in connection with the Research Report. HDFC Securities Ltd. is a SEBI Registered Research Analyst having registration no. INH000002475
Rating Definitions
BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
NEUTRAL : Where the stock is expected to deliver (-) 10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-) 10% returns over the next 12 month period
17
1QFY19E RESULTS PREVIEW
HDFC securities Institutional Equities Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel, Mumbai - 400 013 Board : +91-22-6171 7330 www.hdfcsec.com