Essar Oil Beats Market Expectations, GRMs At USD 9.75 Per Barrel

Essar Oil, India's second largest oil refiner, has beat the street’s expectations by reporting a net profit of Rs 32 crore for the Dec 2012 quarter. The market was expecting a net profit of Rs 30 crore from the company in the quarter. Essar had reported a loss of Rs 3986 crore for the Dec 2011 quarter, hence, this time’s results are positive for the company.

For the quarter, the company reported a total income of Rs 25909 crore, up 86% from Rs 13897 crore reported in the Dec 2011 quarter. This was due to the higher crude oil production as well as better Gross Refining Margins (GRMs).

For the period in question, Essar saw its crude oil production rising by 83% to 5.14 Million Metric Tonne (MMTA) on a Year-on-Year (YoY) basis. This is the highest quarterly production that it has reported. In the Dec quarter last fiscal, the company had shut its Vadinar Refinery for 22 days, and hence the production numbers in the Dec 2012 quarter reflect a low base impact.

Its GRMs also stand at USD 9.75 per barrel, up 350% as compared to that of USD 2.82 per barrel reported a year earlier. The EBITDA margins came in at 4.48% during quarter under review as against 3.25% reported in the same quarter previous year. The higher EBITDA was due to the better GRMs reported as well as a decline in traded goods during the quarter. Employee cost as a percentage of sales declined by 9 basis points (bps), while the other expenses declined by 145 bps, which also increased its EBITDA margins.

Essar Oil has reported interest expenses of Rs 882 crore, up 150% on a YoY basis during the quarter. The interest cover ratio, however, improved by 19 bps YoY to 1.03x.

During the quarter, the company started a total of 6 LPG and CNG pumps and 26 oil pumps. It said that gas production from the Raniganj block has increased to 55000 standard cubic meters per day (scm/day) against 30000 scm/day reported a year ago. It has also completed drilling a total of 120 wells, and the environment clearance for 618 wells is in progress.

These results have set a tone for the Dec 2012 quarter results of the Oil & Gas sector. Essar's higher GRMs may also lift some Oil & Gas stocks up before Reliance Industries reports its earnings on Jan 18, 2012.

With the better-than-expected scorecard, we expect a positive opening of the stock in the Mumbai market on Wednesday Jan 16, 2012. The shares of Essar Energy, which owns 87.09% of Essar Oil, jumped by over 0.5% on the London Stock Exchange on Tuesday, Jan 15, 2012.