7/27/2019 Essar Oil Review

1/2

cmp 53.55

Target 64

Time 30 days

Return % 20%

1 | P a g e

Essar OilEssar oil conducted a press meet to discuss its expansion plan and way forward. Mr. NareshNayyar, CEO of Essar Energy addressed the meet

Highlights of the meet

The company has increased its refining capacity to 18 MMTPA from 14 MMTPA whileits complexity has increased from 6.1 to 11.8

Further optimization project shall increase refining capacity to 20 MMTPA scheduled tobe completed by September 2012.

With increased capacity the company expects a revenue growth of 35% in FY'13

Increased complexity shall increase the premium over Singapore GRMs from currentUSD 3-.4 per barrel to USD 7-8 per barrel over longer period.

Refinery expansion shall convert low margin fuel oil to high value added products likeGasoil, Gasoline and VGO.

With increase in complexity the share of ultra heavy crude, which currently constitute20% of crude basket, will go up to 60%; and as a result the overall share of heavy andultra heavy crude will go up to 80% of the refinery's total crude basket.

Average API of crude will go down to 24/25 degree from existing average API of 31/32degree.

The company has already entered into long-term crude sourcing contract with globalsuppliers, including several national oil companies from Latin America

Close to 80% of its production will now be of valuable light and middle distillates; and

50% of the production of Gasoil (diesel) and Gasoline (petrol) will meet Euro IV andEuro V specifications

Essar Oil is targeting newer markets like Australia, New Zealand and northwest Europe,in addition to countries in the Indian subcontinent for exporting high quality fuels.However Essar Oil will continue to market a majority of its products in the domesticmarket

7/27/2019 Essar Oil Review

2/2

cmp 53.55

Target 64

Time 30 days

Return % 20%

2 | P a g e

Prashant Ruia, Director of the company said: "We are delighted to announce thecompletion of the refinery expansion programme. This expansion will greatly improveour product offering, margins and competiveness. Our capital expenditure programme isnow nearing an end. We have invested close to $5 billion until date in the refinerycomplex and our cost per complexity barrel is one of the lowest in the industry."

Naresh Nayyar, CEO of Essar Energy, said: "After starting commercial production justfour years ago, we are proud of achieving a size and scale that can match the best in theworld. It underlines our commitment to building a world-class, integrated, low-costenergy company that is focused on India's energy growth story."

LK Gupta, MD & CEO, Essar Oil, said, "The timely completion of our expansion projectis a testimony to the untiring commitment of the Essar Oil team as well as teams fromother Essar Group companies who worked seamlessly under highly demandingconditions to bring this dream project to life."

The company is seeking a price of $4.20 per million British thermal unit (mmbtu) forcoal-bed methane (CBM) gas.

Currently Essar Oil's Stan low refinery is reporting a $2 barrel GRM over northwestEuropean margins. The company is implementing a project entailing switching boilerfrom refinery fuel to gas fuel, which would lead a further improvement of $2 per barrel in

GRMs.

The company has drilled 73 wells for its CBM block in Raniganj and plans to further drill200-250 wells next year.

Conclusion:

Seeing the developments in the company, we recommend a buy at cmp 53 with a pricetarget of 64 before the expiry of April contract with an return of 20%.

There is limited downside and all the bad news is been taken in to the stock and ready fora up move with its operations back on track.