Essar Oil is one company that has made investors both rich and poor in the past. Relatively, it has almost always been a speculative play because the refinery initially never existed and once it was commissioned, the stock touched even 300 in 2008 without any fundamental reason. Things have changed now. The company is fundamentally much stronger but the script price range is somewhere between 50 to 55.
First of all, let us see the positives.
Essar oil has increased its capacity to 18MMTPPA and will further increase it to 20+ MMTPA by Sep2012. The complexity index has increased from 6-7 to 11.8, one of the best in the world and only second to RIL refinery in India. This gives Essar Oil refinery the capability to process much heavier crude oils which are way cheaper than high quality crude and hence will help to improve margins tremendously.This will increase GRM by upto $5 a barrel and that is something astounding!!
Add to this the fact the gas reserve (CBM block) that Essar Oil possesses that people simply miss. It is the largest acreage in India and pilot production has already started. It wont be long before Essar Oil profits immensely from Gas sales.
Also, not only is Essar Oil a refining company, it is also an Exploration company and owns stakes in Oil Wells throughout the world and that is increasing steadily.
The Negatives:
The biggest negative is debt (above 22K crores) which is one of the primary reasons why the script is reeling under pressure. Add to this the income tax (almost 6K crores + Interest) that Essar Oil has to pay to Gujarat government. This becomes a very harsh play on the future cash flows of Essar Oil.
Positives vs. Negatives:
The company is a solid 42+K crore company and is bound to double its revenues by FY 13 end, thanks to gas production and doubling of capacity. The margins are going to increase significantly.
However, the cash flows are going to get used up in paying Debt and Tax to Gujarat government as well.
The promoters are very rich and company will come across any difficulties.
With almost all negatives accounted for in current script price, we feel Essar Oil is now a fundamental play and investors can invest in the stock. The results are definitely going to improve in near future and the way political scenario is shaping up between government and RIL, there is a huge possibility that Essar Oil may be a beneficiary.
We suggest to buy at these levels:
1) 25% of Intended quantity : 50-54
2) 25% of Intended quantity : 47 - 50
3) 50% of intended quantiy : 42-45
All said and done, if you are a long term investor and believe in fundamental story of Essar Oil, you can invest in stock below 60 and you will be positively surprised within next one year. The stock has the potential to double within one year.
Cheers!
Invvest2Richness
First of all, let us see the positives.
Essar oil has increased its capacity to 18MMTPPA and will further increase it to 20+ MMTPA by Sep2012. The complexity index has increased from 6-7 to 11.8, one of the best in the world and only second to RIL refinery in India. This gives Essar Oil refinery the capability to process much heavier crude oils which are way cheaper than high quality crude and hence will help to improve margins tremendously.This will increase GRM by upto $5 a barrel and that is something astounding!!
Add to this the fact the gas reserve (CBM block) that Essar Oil possesses that people simply miss. It is the largest acreage in India and pilot production has already started. It wont be long before Essar Oil profits immensely from Gas sales.
Also, not only is Essar Oil a refining company, it is also an Exploration company and owns stakes in Oil Wells throughout the world and that is increasing steadily.
The Negatives:
The biggest negative is debt (above 22K crores) which is one of the primary reasons why the script is reeling under pressure. Add to this the income tax (almost 6K crores + Interest) that Essar Oil has to pay to Gujarat government. This becomes a very harsh play on the future cash flows of Essar Oil.
Positives vs. Negatives:
The company is a solid 42+K crore company and is bound to double its revenues by FY 13 end, thanks to gas production and doubling of capacity. The margins are going to increase significantly.
However, the cash flows are going to get used up in paying Debt and Tax to Gujarat government as well.
The promoters are very rich and company will come across any difficulties.
With almost all negatives accounted for in current script price, we feel Essar Oil is now a fundamental play and investors can invest in the stock. The results are definitely going to improve in near future and the way political scenario is shaping up between government and RIL, there is a huge possibility that Essar Oil may be a beneficiary.
We suggest to buy at these levels:
1) 25% of Intended quantity : 50-54
2) 25% of Intended quantity : 47 - 50
3) 50% of intended quantiy : 42-45
All said and done, if you are a long term investor and believe in fundamental story of Essar Oil, you can invest in stock below 60 and you will be positively surprised within next one year. The stock has the potential to double within one year.
Cheers!
Invvest2Richness
