Baqar Hussain- We downgrade Attock Refinery (ATRL) one notch to ‘Hold’ from ‘Buy’ with a revised TP of Rs230, as we cut our earnings estimates for ATRL by 7-19% over FY16E-17F given (1) weaker-than-expected FY15 earnings, (2) falling GRMs in 1QFY16 and (3) 6-month delay in the completion of the Upgradation Project.
- The delay in the Upgradation Project is likely to chip of ATRL’s FY16E earnings by ~Rs5/share, as the refinery is likely to miss out on higher deemed duty on HSD (9.0% vs. 7.5%) and benefits of (1) 25% higher refining capacity and (2) increased production of higher-margin Motor Gasoline.
- In FY15, ATRL earnings clocked in 29% YoY lower at Rs21.27/share owing to (1) 42% YoY drop in earnings from refinery operations and (2) 24% decline in profits from non-refinery operations.
- In 4QFY15, earnings clocked in 15% YoY and 66% QoQ lower at Rs6.98/share, with GRMs estimated to have dropped to US$0.5/bbl from US$1.0/bbl from the preceding quarter.
Downgrade one notch to Hold with TP of Rs230
We downgrade Attock Refinery (ATRL) one notch to ‘Hold’ from ‘Buy’, as we cut our earnings estimates for ATRL by 7-19% over FY16E-17F given (1) weaker-thanexpected FY15 earnings, (2) falling GRMs in 1QFY16 and (3) 6-month delay in the completion of the Upgradation Project up to June 30, 2016. In tandem, we also cut our Target Price to Rs230 from Rs240 previously. The delay in the Upgradation Project is likely to chip of ATRL’s FY16E earnings by ~Rs5/share, as the refinery is likely to miss out on higher deemed duty on HSD (9.0% vs. 7.5%) and benefits of (1) 25% higher refining capacity and (2) increased production of higher-margin Motor Gasoline. The project also includes (1) Diesel Hydro-desulphurization unit and (2) expansion of existing Captive Power Plant by 18MW.
Syed Zaki Hussain
