cmp 53.

55
Target 64
Time 30 days
Return % 20%

1 | P a g e

Essar Oil
Essar oil conducted a press meet to discuss its expansion plan and way forward. Mr. Naresh
Nayyar, CEO of Essar Energy addressed the meet
Highlights of the meet
The company has increased its refining capacity to 18 MMTPA from 14 MMTPA while
its complexity has increased from 6.1 to 11.8
Further optimization project shall increase refining capacity to 20 MMTPA scheduled to
be 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 current
USD 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 like
Gasoil, Gasoline and VGO.
With increase in complexity the share of ultra heavy crude, which currently constitute
20% of crude basket, will go up to 60%; and as a result the overall share of heavy and
ultra 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 31/32
degree.
The company has already entered into long-term crude sourcing contract with global
suppliers, 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 and
Euro 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 domestic
market

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 the
completion of the refinery expansion programme. This expansion will greatly improve
our product offering, margins and competiveness. Our capital expenditure programme is
now nearing an end. We have invested close to $5 billion until date in the refinery
complex 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 just
four years ago, we are proud of achieving a size and scale that can match the best in the
world. It underlines our commitment to building a world-class, integrated, low-cost
energy company that is focused on India's energy growth story."
LK Gupta, MD & CEO, Essar Oil, said, "The timely completion of our expansion project
is a testimony to the untiring commitment of the Essar Oil team as well as teams from
other Essar Group companies who worked seamlessly under highly demanding
conditions to bring this dream project to life."
The company is seeking a price of $4.20 per million British thermal unit (mmbtu) for
coal-bed methane (CBM) gas.
Currently Essar Oil's Stan low refinery is reporting a $2 barrel GRM over northwest
European margins. The company is implementing a project entailing switching boiler
from 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 drill
200-250 wells next year.

Conclusion:
Seeing the developments in the company, we recommend a buy at cmp 53 with a price
target 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 for
a up move with its operations back on track.