CMP: Rs 135
Credit Suisse upgrades Essar Oil’s rating to ‘outperform’ with a target price of Rs 155. Essar Oil reported Q4FY11 EPS of Rs 2.35, up 18% Q-o-Q and 57% Y-o-Y . ESOIL has booked sales tax deferral benefits of $2.86/bbl in Q4, supported by high product prices. Adjusting for this, Q411 GRM (gross refining margin) stands at $5.3/bbl Q-o-Q. The refinery upgrade project has been delayed due to fabrication issues at some units. These have reportedly been fixed, and ESOIL now believes it will be able to complete the upgrade by Q3/Q4 FY11. Trail production and sales have commenced at the Raniganj CBM block. Commercial production is expected to commence as some pending approvals are obtained. FY12/13E EPS increase by 8%/6% to Rs 6.9/22.3 respectively. Completion of upgrade should materially increase ESOIL’s EPS/cash flow.