Exploration and Production

CMP Rs. 127

August 17, 2011

Hindustan Oil Exploration Company Limited

500186 HINDOILEXP 286 / 127 287,919 1,653 427 2,079 Mar-11 47.18 2.08 6.08 44.66 Jun-11 47.18 1.75 6.76 44.31

BSE Code BSE ID High/Low 1Y (Rs.) Avg. vol (3m) Market Cap (Rs Cr) Net IB Debt (Rs Cr) Enterprise value(Rs Cr) Shareholding % Promoters MFs/ FIs/ Banks FIIs Public & Others Stock Chart ( Relative to Sensex)

1QFY12 Results Review Hindustan Oil Exploration Company Ltd. (HOEC) reported total revenue of Rs. 63.5 crores in 1QFY12 compared to Rs. 89.4 crores in the corresponding quarter last year. Revenue declined 29.0% Y-o-Y as well as 24.7% Q-o-Q primarily due to the temporary shutdown of the companys PY-1 field for 23 days. Gail India Ltd., the buyer of PY-1 gas, failed to take necessary gas supply due to major maintenance activity at the plant site of its end user. PY-1 field is one of the largest contributors to the companys revenue. The 23-day shutdown therefore had a major impact. On the cost front, total operating cost, as percentage of sales, increased from 24.6% in 1QFY11 to 29.7% in 1QFY12. This dragged down EBITDA margin during the quarter. However, the company was able to increase its other income by about 245% Y-o-Y from Rs. 0.9 crores in 1QFY11 to Rs. 3.1 crores in 1QFY12. This helped expand net profit margin from 23.4% to 26.8% over period under review. Diluted EPS for the quarter stood at Rs. 1.30 compared to Rs. 1.60 in 1QFY11.

125 100 75 50 17-Aug-10

Stock Perfm.(%) Absolute Rel. to Sensex Financials (Rs.Cr) Revenue y-o-y EBITDA y-o-y PAT EPS (Dil.) y-o-y EBITDA Margin PAT Margin D/E(x) P/E(x) EV/EBITDA(x)

Key highlights of the quarter

Shut down in PY-1 field dragged down revenue growth The Gujarat based HOEC is a petroleum exploration company. It currently has nine oil/gas fields in India. The North Balol field in Gujarat, known as the PY-1 field, and the offshore fields in Cauvery basin, known as the PY-3 field are the companys two largest revenue contributors. The company has 100% stake in the PY-1 field and about 21% stake in the PY-3 field. The temporary shutdown of the PY-1 field adversely affected the companys top-line growth during the quarter. The company also informed that Hardy Exploration & Production (India), the operator of PY-3 field, has temporarily stopped operating activities. This is likely to affect top-line growth going forward. EBIDTA margin falls but net profit margin expands Y-o-Y Field operating expenses, which constituted about 95.8% of the companys total operating cost, increased during the quarter. In terms of percentage of revenue, these expenses increased from 23.0% in 1QFY11 to 28.4% in the 1QFY12. Consequently, EBITDA margin dropped from 75.4% to 70.3% over the same comparable period. Yet, significant growth in other income helped expand net profit margin. Quarterly Financial Summary - Standalone
Particulars (Rs in Crore) Total Income EBITDA EBITDA Margin % EBIT EBIT Margin % Net Profit Net Profit Margin % EPS 1QFY12 63.5 44.7 70.3% 23.9 37.6% 17.0 26.8% 1.30 1QFY11 89.4 67.5 75.4% 33.9 37.8% 20.9 23.4% 1.60 4QFY11 84.3 63.8 75.7% 34.4 40.8% 24.4 29.0% 1.88 Y-o-Y Gr % -29.0% -33.8% -29.4% -18.7% Q-o-Q Gr % -24.7% -30.0% -30.6% -30.4%
TTM

17-Feb-11 17-Aug-11 HOEC Sensex

1M (28.6) (19.6) 03/09 96 0.0% 40 19.1% 54 4.18 58.3% 41.9% 56.5% 0.12 30.3x 51.4x 6M (29.9) (20.9) 03/10 161 66.6% 110 171.2% 44 3.37 -19.4% 68.2% 27.4% 0.59 37.6x 19.0x 1Yr (44.9) (38.2) 03/11 344 114.3% 246 124.5% 82 6.25 85.5% 71.5% 23.7% 0.50 20.3x 8.4x 7.0% 6.9%

ROCE 2.4% 3.5% ROE 5.1% 4.0% Financial year ends at March 31 Annual Financials are on consolidated basis Qtry Fin 09/10 12/10 03/11
Revenue PAT 69 15 86 24 84 24

302.5 221.2 73.1% 111.8 37.0% 76.3 25.2% 5.85

06/11 64 17 1.30

Source: Company Financials, ICRA Online Research, TTM-trailing twelve months

Valuations
HOEC is trading at a P/E multiple of 20.3x on its FY11 EPS of Rs. 6.25 and 8.4x EV/EBITDA multiple based on FY11 EBITDA of Rs. 246 crores.

EPS 1.12 1.88 1.88 Quarterly Financials are on standalone basis

Hindustan Oil Exploration Company Ltd.

Revenue dropped 29.0% Y-o-Y

100 89 69 86 84 64

Rs in Crore

Revenue fell during the quarter due to the temporary shut-down of the companys PY-1 field.

75

50

25

0 1QFY11 2QFY11 3QFY11

Revenue

4QFY11

1QFY12

Source: Company Financials, ICRA Online Research

EBITDA margin declined Y-o-Y as well as Q-o-Q

100 75.4% 72.1% 73.5% 75.7% 70.3% 70% 63.2 49.6 63.8 60% 44.7 50% 40% 1QFY11 2QFY11 EBITDA 3QFY11 4QFY11 1QFY12
EBITDA Margin %

80%

Rs in Crore

Rise in field operating expenses dragged down EBITDA margin during the quarter.

80 60 40 20

67.5

EBITDA Margin

Source: Company Financials, ICRA Online Research

Net profit margin improves Y-o-Y

30 23.4%
Rs in Crore

29.0% 23.6% 21.2% 20.3 24.4

30.0% 26.8% 25.0% 20.0% 15.0% 10.0%

Net profit margin improved Y-o-Y due to significant growth in other income.

20.9 20

17.0 14.6

10 1QFY11 2QFY11 Net Profit 3QFY11 4QFY11 1QFY12

Net Profit Margin

Source: Company Financials, ICRA Online Research

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Hindustan Oil Exploration Company Ltd.

Summary Financials
Profit & Loss Statement

Particulars (Rs Crore) Net Sales Other Op. Revenue Increase in Stock Total Income Field Operating Expenses Gross Profit Staff Expenses Other Expenditure Recovery of Expenses EBITDA Depreciation, Depletion and Amortization EBIT Interest Other Income Exceptional Items PBT Income Tax Profit after Tax Extra Ordinary Items Others Net Profit Rep. Basic EPS Rep. Diluted EPS Equity Capital Face value
Ratios

1QFY12 61.74 0.00 1.77 63.50 (18.05) 45.46 (2.41) (2.08) 3.70 44.66 (20.76) 23.90 (2.61) 3.15 (0.02) 24.42 (7.41) 17.02 0.00 0.00 17.02 1.30 1.30 130.5 10.0

1QFY11 83.43 0.00 6.01 89.45 (20.59) 68.86 (2.94) (2.40) 3.94 67.46 (33.60) 33.85 (3.27) 0.91 (0.26) 31.24 (10.32) 20.92 0.00 0.00 20.92 1.60 1.60 130.5 10.0

4QFY11 83.44 0.00 0.84 84.29 (18.97) 65.32 (3.30) (2.79) 4.57 63.80 (29.39) 34.41 (2.84) 4.16 0.00 35.73 (11.28) 24.45 0.00 0.00 24.45 1.88 1.88 130.5 10.0

Y-o-Y Gr% -26.0% -70.6% -29.0% -12.3% -34.0% -18.1% -13.1% -6.1% -33.8% -38.2% -29.4% -20.3% 245.0% -21.8% -28.2% -18.7%

Q-o-Q Gr% -26.0% 109.6% -24.7% -4.9% -30.4% -27.0% -25.2% -19.2% -30.0% -29.4% -30.6% -8.4% -24.3% -31.7% -34.4% -30.4%

TTM 308.2 0.0 -5.6 302.5 (76.6) 226.0 (12.1) (9.9) 17.3 221.2 (109.4) 111.8 (11.7) 11.0 0.0 111.1 (127.1) 76.3 0.0 0.0 76.3 5.85 5.85 130.5 10.0

FY11 329.8 0.0 -1.4 328.5 (79.1) 249.4 (12.6) (10.5) 17.5 243.8 (122.3) 121.5 (12.4) 8.8 0.0 117.9 (37.7) 80.2 0.0 0.0 80.2 6.15 6.15 130.5 10.0

-18.7%

-30.4%

Particulars (Rs Crore) Margins Gross Margin (%) EBITDA Margin (%) EBIT Margin (%) Net Profit Margin (%) Valuation EPS BVPS P/BV (x) P/E (x) EV/ EBITDA (x) EV/ Sales (x)

1QFY12 71.6% 70.3% 37.6% 26.8% 1.30

1QFY11 77.0% 75.4% 37.8% 23.4% 1.60

4QFY11 77.5% 75.7% 40.8% 29.0% 1.88

Y-o-Y (bps) (540) (509) (21) 340

Q-o-Q (bps) (591) (537) (319) (221)

TTM 74.7% 73.1% 37.0% 25.2% 5.9

FY11 75.9% 74.2% 37.0% 24.4% 6.15

90.0 2.12

59.9

31.1 12.0 8.9

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Hindustan Oil Exploration Company Ltd.

Contact Details: Rahul Jain ICRA Online Limited, Phone: +91-22-67816185 Email: rahul.jain@icraonline.com

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