It appears like a battle half won for Ruias-led Essar Oil Limited (EOL). After the Supreme Court judgement on company's sales tax deferral liability to Gujarat government on Thursday, investors thronged the counter with heavy volumes on the bourses.
EOL shares opened gap-up on Friday and jumped by over 6% in the early trades on the Bombay Stock Exchange (BSE) with a volume of close to half a million shares.
The Supreme Court on Thursday directed EOL to pay Rs 5,165 crore outstanding sales tax deferral liability to Gujarat government in eight quarterly installments starting from January 2013.
But what can be seen as a relief for the company is that the apex court did not grant the demand of Gujarat government for around Rs 1,800 crore as interest for the period upto January 17, 2012, from the date of commencement of the company's plant in Vadinar, Jamnagar.
Analysts have turned positive for the company and see company stocks outperforming markets in the current fiscal.
Some positives seen for the company are its already lined up credit worth Rs 5000 crore to meet the short term requirement of sales tax liability and its completed expansion work at Vadinar refinery for higher complexity.
"The SC order not only reduces the sales tax liability by Rs 1700 crore or Rs 12 per share, but will also lower annual interest expenses by about Rs 200 crore on account of the reduced liability. We estimate a gross refining margins (GRM) uplift for Essar Oil from third quarter of 2012-13 (E)," informed an analyst at Monarch Securities - an Ahmedabad-based equity research and broking house.
"We raise our 12 month SOTP-based price target to Rs 78 (from Rs 74), implying 61 per cent upside," said the analyst.
According to the industry insiders, another Rs 200 crore of savings in interest expense would result from the lower funding cost of 10 per cent till the installments become due, as earlier Essar Oil had tied up a Rs 5000 crore facility with State Bank of India at interest rate of about 13 per cent to pay the sales tax dues.
"Essar had taken loans from SBI. Now Essar Oil may not utilize the loan amount as it has two years time to repay the dues and can partly fund the repayment by the operational cash flows till fiscal 2014 (E). We see GRM uplift from third quarter of this fiscal. We see stock has upside till Rs 70-73 on valuations over the next 12 months," said Kishor Ostwal, CMD, CNI Research Ltd.
"With completion of the expansion projects at Vadinar, we will be able to process heavy to ultra-heavy crude oil. This will help our GRMs to improve in the remaining part of the fiscal. We expect to turn to profit from the next quarter onwards," L K Gupta, MD and CEO, Essar Oil Ltd had told Business Standard earlier in August.
EOL reported GRM of $4.69 a barrel in the first quarter ended June 30, 2012.
The company shares traded at Rs 51.40 during early trades on Friday, with sharp gains of 6.3% from the previous close.
