With a market cap of £1.64 billion, Essar Energy's stock has gone up by 27 per cent to GBp127, since September 2012. Our title 'Overcoming challenges’ was apt, as the company’s operations have progressed in all its business segments. Research analysts at JP Morgan Cazenove in a recent report have a GBp 150 target price on the stock, indicating an 18 per cent potential upside from the current levels.
In the oil & gas sector, nine month data ended December 2012 for Vadinar showed an increase of 51 per cent in throughput, to 104.35 million barrels/14.69mmt from 68.98 million barrels/9.46mmt, due to the completion of the Vadinar expansion projects. CP GRMs (current price gross refining margins) averaged $7.57/bbl over the nine months to December 2012, compared with $4.07/bbl in the comparable period a year earlier.
The nine month data for Stanlow showed throughput at 57.2 million barrels/7.6mmt. CP GRMs at Stanlow averaged $7.25/bbl over the nine months to December 2012, compared with $2.82/bbl in the first five months of ownership to December 2011.
In the power sector, Mahan I unit 1 of 600 MW was synchronised and commenced generating power in December 2012, while Vadinar P2, 510 MW, was synchronised in November 2012 and commenced generating power. The total power generation operating portfolio is now 3,910 MW.
Progress on the power projects is as follows - Mahan I 1,200 MW project is 96 per cent completed. While its Unit I was synchronised in December 2012, unit 2 synchronisation is expected in the second quarter of 2013-14. Its Paradip 120 MW domestic/imported coal project in Orissa is 68 per cent completed, while Hazira II 270 MW captive fuel is 75 per cent completed. Tori I 1,200 MW domestic coal project shows completion by 42 per cent and Tori II 600 MW domestic coal is 17 per cent completed.
Nine months ended December shows that power generation was higher by 50 per cent, at 6,775 MU, compared with 4,521 MU in the corresponding period, mainly due to the commissioning of Salaya I in Q1 2012-13 and the Vadinar P2 units in Q2 and Q3 of 2012-13. On the debt front, Essar Oil (87.1 per cent subsidiary of Essar Energy) is said to convert its Rs11,000 crore rupee debt into dollar debt.
After having successfully walked out of corporate debt restructuring and stabilised its refinery, Essar oil is planning to convert within six months. L.K. Gupta, MD, Essar Oil, felt that this will help the company not only halve its interest cost, but also extend the maturity period of the debt. The company has so far not fixed a specific deadline for the overall rupee debt conversion to dollar debt, though that is the main priority.
Following the RBI approval to raise $2.27 billion via ECBs (external commercial borrowings), it had converted $481 million into foreign debt in April this year and the remaining $211 million was through swaps. With total debt at Rs22,300 crore at 2012-13 end, debt reduction remains key.