FLASHNOTE

OILANDGAS
FLASH Oilpricefallimpelsmarginboost
IndiaEquityResearch|Oil,GasandServices

DieselandpetrolpriceshavebeenrevisedeffectivefromJuly1,2015
dieselpriceshavebeencutbyINR0.7/litreandpetrolbyINR0.3/litre.Oil
price has extended its steady decline having corrected ~2% since the
previousfortnight.Duringtheperiod,dieselcrackspreadscontractedbya
sharp~12%, whilepetrol cracksfellforthefirsttimesinceMay2015by
~7%. At current prices (diesel INR50.2/litre and petrol INR66.6/litre),
marketing margins are pegged at INR1.2/litre (INR0.8/litre earlier) and
INR2/litre (INR1.3/litre earlier) for diesel and petrol, respectively. CNG
competitiveness versus petrol remains at 59%, which bodes well for IGL
should pricesremain atcurrentlevels.Based on ourglobalcasestudies,
wehadhighlightedinourrecentdetailedreport,Double,butnoquits!,
dated March 9, 2015, that marketing margins are poised to rise by as
muchas~150%andearningsofOMCs(HPCL,BPCLandIOCL)coulddouble
overthenext3years.

Crudeprices,crackspreadssoften
Oil prices have softened ~2% since the last fortnight to ~USD61.4/bbl (USD62.3/bbl
previously)onGreecefearsandrisingOPECsupplies.Crackspreadsondieselandpetrol
fell~12%and~7%,respectively,onglobalinventorybuilds.

Marginsinflate
Dieselandpetrolmarginshaveexpanded41%and53%to~INR1.2/litreand~INR2/litre,
respectively. Since decontrol, OMCs have been recording supernormal margins on
diesel,averagingINR1.8/litre(YTDFY16~INR1/litre).Webelievemarginswilleventually
settleat~INR1.8/litrebasedontheeconomicsofthemarginalcostofsettingupanew
gasstationandourglobalcasestudies.

Chart1:Dieselmarginsrise
5.0

Chart2:Petrolmarginspikes
7.0
5.6
(INR/ltr)

3.0
2.0
1.0

4.2
2.8
1.4

Dieselmargins
Avg.sincederegulation

JalIrani

0.0
Oct14
Nov14
Dec14
Jan15
Feb15
Mar15
Apr15
May15
Jun15

0.0
Oct14
Nov14
Dec14
Jan15
Feb15
Mar15
Apr15
May15
Jun15

(INR/ltr)

4.0

Petrolmargins
Avg.sincederegulation

+912266203087
jal.irani@edelweissfin.com

YusufiKapadia
+912240635407
yusufi.kapadia@edelweissfin.com

Source:Edelweissresearch
July1,2015
EdelweissResearchisalsoavailableonwww.edelresearch.com,
1
BloombergEDEL<GO>,ThomsonFirstCall,ReutersandFactset.

EdelweissSecuritiesLimited

OilandGas
EdelweissSecuritiesLimited,EdelweissHouse,offC.S.T.Road,Kalina,Mumbai400098.
Board:(9122)40094400,Email:research@edelweissfin.com
NiravSheth
HeadResearch
nirav.sheth@edelweissfin.com

EdelweissSecuritiesLimited

OilandGas
DISCLAIMER

EdelweissSecuritiesLimited(ESLorResearchEntity)isregulatedbytheSecuritiesandExchangeBoardofIndia(SEBI)andis
licensedtocarryonthebusinessofbroking,depositoryservicesandrelatedactivities.ThebusinessofESLanditsAssociates(list
available on www.edelweissfin.com) are organized around five broad business groups Credit including Housing and SME
Finance,Commodities,FinancialMarkets,AssetManagementandLifeInsurance.
This Report has been prepared by Edelweiss Securities Limited in the capacity of a Research Analyst having SEBI Registration
No.INH200000121 and distributed as per SEBI (Research Analysts) Regulations 2014. This report does not constitute an
offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The
informationcontainedhereinisfrompubliclyavailabledataorothersourcesbelievedtobereliable.Thisreportisprovidedfor
assistanceonlyandisnotintendedtobeandmustnotalonebetakenasthebasisforaninvestmentdecision.Theuserassumes
the entire risk of any use made of this information. Each recipient of this report should make such investigation as it deems
necessary toarrive at an independent evaluation of an investment in the securities of companies referred to in this document
(including the merits and risks involved), and should consult his own advisors to determine the merits and risks of such
investment.Theinvestmentdiscussedorviewsexpressedmaynotbesuitableforallinvestors.
Thisinformationisstrictlyconfidentialandisbeingfurnishedtoyousolelyforyourinformation.Thisinformationshouldnotbe
reproducedorredistributedorpassedondirectlyorindirectlyinanyformtoanyotherpersonorpublished,copied,inwholeorin
part,foranypurpose.Thisreportisnotdirectedorintendedfordistributionto,oruseby,anypersonorentitywhoisacitizenor
residentoforlocatedinanylocality,state,countryorotherjurisdiction,wheresuchdistribution,publication,availabilityoruse
wouldbecontrarytolaw,regulationorwhichwouldsubjectESLandassociates/groupcompaniestoanyregistrationorlicensing
requirementswithinsuchjurisdiction.Thedistributionofthisreportincertainjurisdictionsmayberestrictedbylaw,andpersons
inwhosepossessionthisreportcomes,shouldobserve,anysuchrestrictions.Theinformationgiveninthisreportisasofthedate
ofthisreportandtherecanbenoassurancethatfutureresultsoreventswillbeconsistentwiththisinformation.Thisinformation
issubjecttochangewithoutanypriornotice.ESLreservestherighttomakemodificationsandalterationstothisstatementas
mayberequiredfromtimetotime.ESLoranyofitsassociates/groupcompaniesshallnotbeinanywayresponsibleforanyloss
ordamagethatmayarisetoanypersonfromanyinadvertenterrorintheinformationcontainedinthisreport.ESLiscommitted
toprovidingindependentandtransparentrecommendationtoitsclients.NeitherESLnoranyofitsassociates,groupcompanies,
directors,employees,agentsorrepresentativesshallbeliableforanydamageswhetherdirect,indirect,specialorconsequential
including loss of revenue or lost profits that may arise from or in connection with the use of the information. Our proprietary
trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed
herein.Pastperformanceisnotnecessarilyaguidetofutureperformance.Thedisclosuresofintereststatementsincorporatedin
thisreportareprovidedsolelytoenhancethetransparencyandshouldnotbetreatedasendorsementoftheviewsexpressedin
thereport.Theinformationprovidedinthesereportsremains,unlessotherwisestated,thecopyrightofESL.Alllayout,design,
originalartwork,conceptsandotherIntellectualProperties,remainsthepropertyandcopyrightofESLandmaynotbeusedin
anyformorforanypurposewhatsoeverbyanypartywithouttheexpresswrittenpermissionofthecopyrightholders.
ESLshallnotbeliableforanydelayoranyotherinterruptionwhichmayoccurinpresentingthedataduetoanyreasonincluding
network (Internet) reasons or snags in the system, break down of the system or any other equipment, server breakdown,
maintenanceshutdown,breakdownofcommunicationservicesorinabilityoftheESLtopresentthedata.InnoeventshallESLbe
liable for any damages, including without limitation direct or indirect, special, incidental, or consequential damages, losses or
expensesarisinginconnectionwiththedatapresentedbytheESLthroughthisreport.
We offer our research services to clients as well as our prospects. Though this report is disseminated to all the customers
simultaneously,notallcustomersmayreceivethisreportatthesametime.Wewillnottreatrecipientsascustomersbyvirtueof
theirreceivingthisreport.
ESLand itsassociates, officer,directors,and employees,researchanalyst(includingrelatives)worldwide may:(a)fromtimeto
time,havelongorshortpositionsin,andbuyorsellthesecuritiesthereof,ofcompany(ies),mentionedhereinor(b)beengaged
in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the
financial instruments of the subject company/company(ies) discussed herein or act as advisor or lender/borrower to such
company(ies)orhaveotherpotential/materialconflictofinterestwithrespecttoanyrecommendationandrelatedinformation
and opinions at the time of publication of research report or at the time of public appearance. ESL may have proprietary
long/shortpositionintheabovementionedscrip(s)andthereforeshouldbeconsideredasinterested.Theviewsprovidedherein
aregeneralinnatureanddonotconsiderriskappetiteorinvestmentobjectiveofanyparticularinvestor;readersarerequested
totakeindependentprofessionaladvicebeforeinvesting.Thisshouldnotbeconstruedasinvitationorsolicitationtodobusiness
withESL.
3

EdelweissSecuritiesLimited

OilandGas
ESLoritsassociatesmayhavereceivedcompensationfromthesubjectcompanyinthepast12months.ESLoritsassociatesmay
havemanagedorcomanagedpublicofferingofsecuritiesforthesubjectcompanyinthepast12months.ESLoritsassociates
mayhavereceivedcompensationforinvestmentbankingormerchantbankingorbrokerageservicesfromthesubjectcompanyin
the past 12 months. ESL or its associates may have received any compensation for products or services other than investment
bankingormerchantbankingorbrokerageservicesfromthesubjectcompanyinthepast12months.ESLoritsassociateshave
notreceivedanycompensationorotherbenefitsfromtheSubjectCompanyorthirdpartyinconnectionwiththeresearchreport.
Research analyst or his/her relative or ESLs associates may have financial interest in the subject company. ESL, its associates,
researchanalystandhis/herrelativemayhaveotherpotential/materialconflictofinterestwithrespecttoanyrecommendation
andrelatedinformationandopinionsatthetimeofpublicationofresearchreportoratthetimeofpublicappearance.
Researchanalysthasservedasanofficer,directororemployeeofsubjectCompany:No
ESLhasfinancialinterestinthesubjectcompanies:No
ESLsAssociatesmayhaveactual/beneficialownershipof1%ormoresecuritiesofthesubjectcompanyattheendofthemonth
immediatelyprecedingthedateofpublicationofresearchreport.
Researchanalystorhis/herrelativehasactual/beneficialownershipof1%ormoresecuritiesofthesubjectcompanyattheendof
themonthimmediatelyprecedingthedateofpublicationofresearchreport:No
ESL has actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately
precedingthedateofpublicationofresearchreport:No
Subjectcompanymayhavebeenclientduringtwelvemonthsprecedingthedateofdistributionoftheresearchreport.
There were no instances of noncompliance by ESL on any matter related to the capital markets, resulting in significant and
materialdisciplinaryactionduringthelastthreeyearsexceptthatESLhadsubmittedanofferofsettlementwithSecuritiesand
Exchangecommission,USA(SEC)andthesamehasbeenacceptedbySECwithoutadmittingordenyingthefindingsinrelationto
theirchargesofnonregistrationasabrokerdealer.
Agraphofdailyclosingpricesofthesecuritiesisalsoavailableatwww.nseindia.com

AnalystCertification:
Theanalystforthisreportcertifiesthatalloftheviewsexpressedinthisreportaccuratelyreflecthisorherpersonalviewsabout
thesubjectcompanyorcompaniesanditsortheirsecurities,andnopartofhisorhercompensationwas,isorwillbe,directlyor
indirectlyrelatedtospecificrecommendationsorviewsexpressedinthisreport.

AdditionalDisclaimers

DisclaimerforU.S.Persons
This research report is a product of Edelweiss Securities Limited, which is the employer of the research analyst(s) who has
prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States
(U.S.) and are not associated persons of any U.S. regulated brokerdealer and therefore the analyst(s) is/are not subject to
supervisionbyaU.S.brokerdealer,andis/arenotrequiredtosatisfytheregulatorylicensingrequirementsofFINRAorrequired
tootherwisecomplywithU.S.rulesorregulationsregarding,amongotherthings,communicationswithasubjectcompany,public
appearancesandtradingsecuritiesheldbyaresearchanalystaccount.
ThisreportisintendedfordistributionbyEdelweissSecuritiesLimitedonlyto"MajorInstitutionalInvestors"asdefinedbyRule
15a6(b)(4)oftheU.S.SecuritiesandExchangeAct,1934(theExchange Act)andinterpretationsthereof byU.S.Securitiesand
ExchangeCommission(SEC)inrelianceonRule15a6(a)(2).IftherecipientofthisreportisnotaMajorInstitutionalInvestoras
specifiedabove,thenitshouldnotactuponthisreportandreturnthesametothesender.Further,thisreportmaynotbecopied,
duplicatedand/ortransmittedonwardtoanyU.S.person,whichisnottheMajorInstitutionalInvestor.
InrelianceontheexemptionfromregistrationprovidedbyRule15a6oftheExchangeActandinterpretationsthereofbytheSEC
in order to conduct certain business with Major Institutional Investors, Edelweiss Securities Limited has entered into an
agreementwithaU.S.registeredbrokerdealer,EdelweissFinancialServicesInc.("EFSI").Transactionsinsecuritiesdiscussedin
thisresearchreportshouldbeeffectedthroughEdelweissFinancialServicesInc.
4

EdelweissSecuritiesLimited

OilandGas
DisclaimerforU.K.Persons
The contents of this research report have not been approved by an authorised person within the meaning of the Financial
ServicesandMarketsAct2000("FSMA").

IntheUnitedKingdom,thisresearchreportisbeingdistributedonlytoandisdirectedonlyat(a)personswhohaveprofessional
experience in matters relating to investments falling within Article 19(5) of the FSMA (Financial Promotion) Order 2005 (the
Order);(b)personsfallingwithinArticle49(2)(a)to(d)oftheOrder(includinghighnetworthcompaniesandunincorporated
associations); and (c) any other persons to whom it may otherwise lawfully be communicated (all such persons together being
referredtoasrelevantpersons).

Thisresearchreportmustnotbeactedonorreliedonbypersonswhoarenotrelevantpersons.Anyinvestmentorinvestment
activity to which this research report relates is available only to relevant persons and will be engaged in only with relevant
persons. Any person who is not a relevant person should not act or rely on this research report or any of its contents. This
research report must not be distributed, published, reproduced or disclosed (in whole or in part) by recipients to any other
person.

DisclaimerforCanadianPersons
ThisresearchreportisaproductofEdelweissSecuritiesLimited("ESL"),whichistheemployeroftheresearchanalystswhohave
preparedtheresearchreport.TheresearchanalystspreparingtheresearchreportareresidentoutsidetheCanadaandarenot
associatedpersonsofanyCanadianregisteredadviserand/ordealerand,therefore,theanalystsarenotsubjecttosupervisionby
aCanadianregisteredadviserand/ordealer,andarenotrequiredtosatisfytheregulatorylicensingrequirementsoftheOntario
Securities Commission, other Canadian provincial securities regulators, the Investment Industry Regulatory Organization of
CanadaandarenotrequiredtootherwisecomplywithCanadianrulesorregulationsregarding,amongotherthings,theresearch
analysts'businessorrelationshipwithasubjectcompanyortradingofsecuritiesbyaresearchanalyst.

ThisreportisintendedfordistributionbyESLonlyto"PermittedClients"(asdefinedinNationalInstrument31103("NI31103"))
who are resident in the Province of Ontario, Canada (an "Ontario Permitted Client"). If the recipient of this report is not an
OntarioPermittedClient,asspecifiedabove,thentherecipientshouldnotactuponthisreportandshouldreturnthereportto
thesender.Further,thisreportmaynotbecopied,duplicatedand/ortransmittedonwardtoanyCanadianperson.

ESL is relying on an exemption from the adviser and/or dealer registration requirements under NI 31103 available to certain
international advisers and/or dealers. Please be advised that (i) ESL is not registered in the Province of Ontario to trade in
securities nor is it registered in the Province of Ontario to provide advice with respect to securities; (ii) ESL's head office or
principal place of business is located in India; (iii) all or substantially all of ESL's assets may be situated outside of Canada; (iv)
theremaybedifficultyenforcinglegalrightsagainstESLbecauseoftheabove;and(v)thenameandaddressoftheESL'sagentfor
serviceofprocessintheProvinceofOntariois:BamacServicesInc.,181BayStreet,Suite2100,Toronto,OntarioM5J2T3Canada.

Copyright2009EdelweissResearch(EdelweissSecuritiesLtd).Allrightsreserved

AccesstheentirerepositoryofEdelweissResearchonwww.edelresearch.com
AccesstheentirerepositoryofEdelweissResearchonwww.edelresearch.com
5

EdelweissSecuritiesLimited