Upload
others
View
9
Download
0
Embed Size (px)
Citation preview
Disclaimer & Disclosures
This report must be read with the disclosures and the analyst certifications in
the Disclosure appendix, and with the Disclaimer, which forms part of it.
Issuer of report: HSBC Securities and Capital Markets (India) Private Limited
View HSBC Global Research at:
https://www.research.hsbc.com
Refining margin has dipped on weak distillate margin
Both polymer and polyester margins are inching up
India oil consumption growth moderated in July but remains
above historical trend
Highlights
Refining margins in the region continue to weaken due to further dip in distillate
margins. The Singapore Complex refining margin averaged USD3.8/b in August
(down USD1.1/b m-o-m, USD1.9/b y-o-y). We continue to believe that regional refining
margin will trend around USD5-6/b over medium term. The global refining industry has
steadily hiked gasoline production which in turn has meant lower throughput of middle
distillate and hence distillate margins will gain strength, in our view.
Polymer margins have moved up in August. PE-Naphtha margin is up by c2% m-o-m
while PP-Naphtha margin was also up by c2% m-o-m. PSF and POY margins were up
sequentially by 9-10%. Please see page 9 for detailed charts.
LNG price has moderated as LNG terminals restart operations. Operators of LNG
plants at Gorgon, Australia and Angola have indicated that these plants will be
operating optimally by 2016-end after unplanned shutdown a few months ago. While
new capacity including new trains in Australia and Sabine Pass, USA, is scheduled to
commence operations later this year, we believe the spate of new regas capacity will
continue to provide some support to the regional LNG market.
Petroleum product consumption in India grew by 4% y-o-y, or c134kbd in July’16
over July’15. This was lower than 10% growth y-t-d in CY16. We believe that the
pace will remain moderate in monsoon months, but underlying growth remains higher
than historical trend of 110kbd in the last decade. Growth in July was led by Petrol
and LPG.
Global oil demand and supply. OPEC expects world oil demand to grow by
c1.2mb/d in 2016, as per the latest OPEC Monthly Oil Market Report. It pegged total
oil demand at 94.26 mbd at present. If further expects non-OPEC production to
gradually recover after its bottom in 2QCY16. OPEC production averaged 33.1 mbd
in July, which was largely flat sequentially. Oil tanker freight rate continued falling
with VLCC (very large crude carrier) rate currently at cUSD12,000/d (down from
average of cUSD27,000/d in June 2016).
Agricultural commodities: Global agricultural commodity price outlook remains
bearish. While there has been modest improvement in soybean prices, the prices
along with those of corn and wheat remain close to the lower end of the 5-year range.
29 August 2016
Kumar Manish* Analyst
HSBC Securities and Capital Markets (India) Private Limited
+91 22 22681238
Thomas C. Hilboldt*, CFA
Analyst
The Hongkong and Shanghai Banking Corporation Limited
+852 2822 2922
* Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations
India Petroleum & Chemicals Insight
EQUITY NATURAL RESOURCES AND ENERGY
India – Oil and Gas August 2016 – Weak refining, strong polymers
EQUITY NATURAL RESOURCES AND ENERGY
29 August 2016
2
Highlights 1
Crude oil trends 3
Refining margins and product spreads 5
Product demand – India, China & US 7
India – Other product sales 8
Petrochemical margins 9
Indian petrochemical margins 11
Global LNG prices 13
Global fertilizer and agricultural commodity prices 14
Disclosure appendix 15
Disclaimer 17
Contents
3
EQUITY NATURAL RESOURCES AND ENERGY
29 August 2016
Crude oil trends
Brent-WTI spread (USD/b) Brent-Dubai spread (USD/b)
Source: Thomson Reuters Datastream Source: Thomson Reuters Datastream
Arab Light-Heavy spread (USD/b) Brent premium (USD/b) over Indian crude basket
Source: Thomson Reuters Datastream Source: Thomson Reuters Datastream, Ministry of Petroleum, India
Other Asian Crude benchmark prices (USD/b)
Brent prices and Brent-Maya spread (USD/b) (RHS)
Source: Thomson Reuters Datastream Source: Thomson Reuters Datastream
25
30
35
40
45
50
55
May-16 Jun-16 Jul-16 Aug-16
WTI Brent WTI spread
20
25
30
35
40
45
50
55
May-16 Jun-16 Jul-16 Aug-16
Dubai Brent Dubai spread
15
20
25
30
35
40
45
50
55
May-16 Jun-16 Jul-16 Aug-16
Arab Heavy Arab Light Heavy Spread
20
25
30
35
40
45
50
55
May-16 Jun-16 Jul-16 Aug-16
Indian Basket crude price Brent Premium to Indian basket
20
25
30
35
40
45
50
55
60
May-16 Jun-16 Jul-16 Aug-16
Tapis Cinta
20
30
40
50
60
70
80
May-16 Jun-16 Jul-16 Aug-16
Brent (USD/bbl) Brent-Maya spread (USD/bbl)
EQUITY NATURAL RESOURCES AND ENERGY
29 August 2016
4
Brent front-month spreads to 2M, 3M, 6M and 12M (USD/b)
Source: Bloomberg
Brent (USD/b) and dollar index Net long combined non-commercial positions in crude oil
Source: Bloomberg Source: CFTC, Bloomberg
Crude oil futures
Source: Bloomberg
-8
-7
-6
-5
-4
-3
-2
-1
0
May-16 Jun-16 Jul-16 Aug-16
2M 3M 6M 12M
70
75
80
85
90
95
100
105
0
20
40
60
80
100
120
140
160
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Brent -LHS
0
50
100
150
200
-1,000
-500
0
500
1,000
200
0200
1200
2200
3200
4200
5200
6200
7200
8200
9201
0201
1201
2201
3201
4201
5201
6
Th
ou
san
ds
Net Commercial Combined PositionNet Non commercial combined positionBrent
0
20
40
60
80
100
120
140
160
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Aug-15 Aug-13 Aug-11
Aug-09 Aug-07 Aug-05
NYMEX crude 1M forward
5
EQUITY NATURAL RESOURCES AND ENERGY
29 August 2016
Refining margins and product spreads
Singapore Complex GRM (USD/b) (Dubai cracking) averaged below USD5/b in August
Arab Light – Arab Heavy (USD/b) spread inched lower in August
Source: Thomson Reuters Eikon Source: Thomson Reuters Eikon
Petrol–Dubai spread (USD/b) is plateauing Diesel – Dubai crack spread (USD/b) dipped
Source: Thomson Reuters Eikon Source: Thomson Reuters Eikon
Jet fuel – Dubai crack (USD/b) also dipped Naphtha – Dubai crack (USD/b) has weakened
Source: Thomson Reuters Eikon Source: Thomson Reuters Eikon
0
2
4
6
8
10
12
14
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
FY16 FY17
2
3
4
5
6
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
FY16 FY17
0
5
10
15
20
25
30
35
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
FY16 FY17
0
5
10
15
20
25
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
FY16 FY17
0
5
10
15
20
25
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
FY16 FY17
(20)
(10)
0
10
20
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
FY16 FY17
EQUITY NATURAL RESOURCES AND ENERGY
29 August 2016
6
Singapore GRM (USD/b) and refinery shutdowns (in Asia/Middle East)
Source: Bloomberg, Thomson Reuters Datastream
Refinery outages (mbd) globally
Source: Bloomberg, Thomson Reuters Datastream
Status of refinery capacity addition in India
Company Location Capacity (kbd) Expected date of commissioning
BPCL Kochi (expansion) 120 Q2FY17 HPCL Barmer, Rajasthan (greenfield) 180 Mothballed IOC Vadodara (expansion) 85 2018 Nagarjuna Cuddalore (greenfield) 120 Mothballed HPCL Mumbai (expansion) 60 2018 HPCL Vizag (expansion) 120 2020 HMEL Bhatinda, Panjab 50 2017
Source: HSBC, Company data
0
2
4
6
8
10
0%
5%
10%
15%
20%
25%
1Q
09
3Q
09
1Q
10
3Q
10
1Q
11
3Q
11
1Q
12
3Q
12
1Q
13
3Q
13
1Q
14
3Q
14
1Q
15
3Q
15
1Q
16
3Q
16
Shutdown capacity (percentage of capacity) Singapore GRM ($/bbl)
0
5
10
15
20
25
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
Asia/Middle East Europe/Africa Americas
7
EQUITY NATURAL RESOURCES AND ENERGY
29 August 2016
Product demand – India, China & US
INDIA y-t-d domestic petrol sales (mt) INDIA y-t-d domestic diesel sales (mt)
Source: PPAC Source: PPAC
China Gasoline Demand (mt) China Diesel Demand (mt)
Source: Thomson Reuters Datastream, HSBC estimates Source: Thomson Reuters Datastream, HSBC estimates
US total motor gasoline demand (mt) US total distillate demand (mt)
Source: Bloomberg, DOE Source: Bloomberg, DOE
9 9 10 11 12
14 15 16 17
18
21
12 14
0%
5%
10%
15%
20%
0
5
10
15
20
25
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
ytd
15
ytd
16
Sales (in mmt) - LHS
40 42 46
51 55
59 63
69 69 69 73
42 45
-2%
0%
2%
4%
6%
8%
10%
12%
0
20
40
60
80
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
ytd
15
ytd
16
Sales (in mmt) - LHS YoY growth - RHS
47 4852 56
64 68 7278
8794
106115
67 70
0%2%4%6%8%10%12%14%16%18%
01224364860728496
108120132
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
ytd
15
ytd
16
Gasoline (LHS) YoY growth %
104 109116124139139
155167171170174173
10294
-10%
-5%
0%
5%
10%
15%
20%
25%
-100
-50
0
50
100
150
200
25020
04
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
ytd
15
ytd
16
Diesel (LHS) YoY growth %
399
402
393
389
391
384
371
376
380
393
158
160
-4%
-2%
0%
2%
4%
0
100
200
300
400
500
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
ytd
15
ytd
16
Demand (in mmt)-LHS YoY growth-RHS
180
184
177
156
162
164
157
163
165
167
67
64
-16%
-12%
-8%
-4%
0%
4%
8%
0
50
100
150
200
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
ytd
15
ytd
16
Demand (in mmt) - LHS YoY growth - RHS
EQUITY NATURAL RESOURCES AND ENERGY
29 August 2016
8
India – Other product sales
LPG sales (mt) Kerosene sales (mt)
Source: PPAC Source: PPAC
Naphtha sales (mt) Jet fuel sales (mt)
Source: PPAC Source: PPAC
Fuel oil sales (mt) Petcoke sales (mt)
Source: PPAC Source: PPAC
10 11 12 12 13
14 15 16 16
18 19
11 12
0%
2%
4%
6%
8%
10%
12%
0
5
10
15
20
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
ytd
15
ytd
16
Sales (in mmt) - LHS
10 10 9 9 9 9 8
8 7 7 7
4 4
-10%
-5%
0%
5%
0
2
4
6
8
10
12
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
ytd
15yt
d 16
Sales (in mmt) - LHS
13 13 13 14
12 10 11
12 12 11
13
7 8
-20%
-10%
0%
10%
20%
0
5
10
15
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
ytd
15
ytd
16
Sales (in mmt) - LHS
3 4
4 5 5 5
5 5 5 6 6
3 4
-10%
0%
10%
20%
30%
0
2
4
6
820
05
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
ytd
15
ytd
16
Sales (in mmt) - LHS
13 13 13 13 12
11 10
8
6 6 6
4 4
-30%
-20%
-10%
0%
10%
20%
30%
0
5
10
15
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
ytd
15
ytd
16
Sales (in mmt) - LHS
5 5 6 6 7
5 6
9
11
14
17
9
12
-40%
-20%
0%
20%
40%
60%
0
5
10
15
20
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
ytd
15
ytd
16
Sales (in mmt) - LHS YoY growth - RHS
9
EQUITY NATURAL RESOURCES AND ENERGY
29 August 2016
Petrochemical margins
PE – Naphtha(USD/t) margin is moving up again
RIL (derived) selling price vs international price and spread (USD/tonne)
Source: Thomson Reuters Datastream, HSBC estimates Source: RIL, HSBC estimates
PP – Naphtha (USD/t) spread too moved up sharply in July
RIL (derived) selling price vs international price and spread (USD/tonne)
Source: Thomson Reuters Datastream, HSBC estimates Source: RIL, HSBC estimates
PSF-Naphtha (USD/t) margin inched up but remains weak
RIL (derived) selling price vs international price and spread (USD/tonne)
Source: Thomson Reuters Datastream, HSBC estimates Source: RIL, HSBC estimates
0
500
1,000
1,500
2,000
Jan-13Jul-13Jan-14Jul-14Jan-15Jul-15Jan-16Jul-16
Naphtha PE-Naphtha PE (RIL implied)
0
500
1,000
1,500
2,000
Jan-13Jul-13Jan-14Jul-14Jan-15Jul-15Jan-16Jul-16
Naphtha PP-Naphtha PP (RIL implied)
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16
Naphtha PSF-Naphtha PSF (RIL implied)
300
400
500
600
700
800
900
Apr Jun Aug Oct Dec Feb
FY11-15 FY16 FY17
FY11-15 Aug-15 Jul-16 Aug-16
549 612 612 625
300
400
500
600
700
800
900
1,000
Apr Jun Aug Oct Dec Feb
FY11-15 Aug-15 Jul-16 Aug-16
501 746 696 711
400
900
1,400
Apr Jun Aug Oct Dec Feb
FY11-15
FY11-15 Aug-15 Jul-16 Aug-16
785 684 632 684
EQUITY NATURAL RESOURCES AND ENERGY
29 August 2016
10
PX – Naphtha (USD/t) spread is up y-o-y PX-PTA (USD/t) spread remains weak
Source: Thomson Reuters Datastream, HSBC estimates Source: Thomson Reuters Datastream, HSBC estimates
MEG – Naphtha (USD/t) margin also moved up moderately
PSF- Naphtha Integrated margins (USD/t)
Source: Thomson Reuters Datastream, HSBC estimates Source: Thomson Reuters Datastream, HSBC estimates
POY-Naphtha integrated margin remains lower than the five year range
Middling grade cotton (USD cents/lb)
400
900
1,400
Apr Jun Aug Oct Dec Feb
FY11-15 FY16 FY17
Source: Thomson Reuters Datastream, HSBC estimates Source: Bloomberg
0
50
100
150
200
250
Dat
eA
pr-1
0A
ug-1
0Ja
n-11
Jun-
11N
ov-1
1M
ar-1
2A
ug-1
2Ja
n-13
Jun-
13O
ct-1
3M
ar-1
4A
ug-1
4Ja
n-15
May
-15
Oct
-15
Mar
-16
0
100
200
300
400
Apr Jun Aug Oct Dec Feb
FY11-15
FY11-15 Aug-15 Jul-16 Aug-16
132 66 67 72
100
300
500
700
Apr Jun Aug Oct Dec FebFY11-15
FY11-15 Aug-15 Jul-16 Aug-16
495 358 427 431
200
400
600
800
1,000
Apr Jun Aug Oct Dec FebFY11-15
FY11-15 Aug-15 Jul-16 Aug-16
470 476 383 394
400
900
1,400
Apr Jun Aug Oct Dec Feb
FY11-15
FY11-15 Aug-15 Jul-16 Aug-16
785 684 632 684
11
EQUITY NATURAL RESOURCES AND ENERGY
29 August 2016
Indian petrochemical margins
Indian PE – Naphtha spread (INR/kg) PP – Naphtha (INR/kg) spread
Source: RIL, HSBC estimates Source: RIL, HSBC estimates
MEG – Naphtha (INR/kg) spread PTA – Naphtha (INR/kg) spread
Source: RIL, HSBC estimates Source: RIL, HSBC estimates
PSF – Naphtha (INR/kg) spread POY – Naphtha spread (INR/kg)
Source: RIL, HSBC estimates Source: RIL, HSBC estimates
40
60
80
100
120
140
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
FY17 FY16
40
50
60
70
80
90
100
110
120
130
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
FY17 FY16
20
30
40
50
60
70
80
90
100
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
FY17 FY16
25
45
65
85
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
FY17 FY16
10
20
30
40
50
60
70
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
FY17 FY16
20
30
40
50
60
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
FY17 FY16
EQUITY NATURAL RESOURCES AND ENERGY
29 August 2016
12
Current under-recovery (Brent of USD40.73/b and INR/USD 66.87 exchange rate)
Petroleum products Units Under-recovery (% of MRP)
LPG INR/cylinder 63.91 (15% of price) Kerosene INR/litre 11.49 (73% of price)
Source: HSBC estimates. Note: Prices based on PPAC’s latest fortnightly review
Automotive retail fuel prices (INR/litre) Industrial fuel prices (INR/kg)
Source: PPAC, BPCL; IGL Source: PPAC, BPCL
Note: Turpentine price is in INR/litre
30
40
50
60
70
Petrol (INR/ltr) Diesel (INR/ltr) CNG (INR/kg)
-12M -6M -3M -1M Current
10152025303540455055
Tho
usan
ds
-12M -6M -3M -1M Current
13
EQUITY NATURAL RESOURCES AND ENERGY
29 August 2016
Global LNG prices
Global LNG landed prices (USD/mBtu) Global LNG demand for annual basis
(bcm)
25
26
27
28
29
30
31
Jan
Fe
b
Ma
r
Ap
r
Ma
y
Jun
Jul
Au
g
Se
p
Oct
No
v
De
c
2012 2013 2014
2015 2016
Source: Thomson Reuters Eikon Source: Thomson Reuters Eikon
Asian LNG demand trend (mt) Europe LNG demand trend (mt)
-
5
10
15
20
Jan-1
3
Apr-
13
Jul-
13
Oct
-13
Jan-1
4
Apr-
14
Jul-14
Oct
-14
Jan-1
5
Apr-
15
Jul-
15
Oct
-15
Jan-1
6
Apr-
16
Japan S. Korea China India Taiwan Other Asia
0
2
4
6
Jan
-12
Jul-1
2
Jan-
13
Jul-1
3
Jan
-14
Jul-1
4
Jan-
15
Jul-1
5
Jan
-16
Belgium Spain Turkey
UK France Greece
Source: Thomson Reuters Eikon Source: Thomson Reuters Eikon
Asian LNG prices (USD/mBtu)
Source: Thomson Reuters Eikon
0
2
4
6
8
10
Japa
n
Sou
th K
orea
Chi
na
Tai
wan
Indi
a
UK
Bra
zil
Cov
e P
oint
, US
Can
ada
Por
t
Current 1 year ago
0.0
5.0
10.0
15.0
20.0
25.0
Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 Jul-15 Nov-15 Mar-16 Jul-16
India Japan Korea China Taiwan
EQUITY NATURAL RESOURCES AND ENERGY
29 August 2016
14
Global fertilizer and agricultural commodity prices
Urea Black Sea Spot price (USD/tonne) US CBOT Corn Futures price (USD/bushel)
Source: Bloomberg Source: Thomson Reuters Datastream
Potash Vancouver FOB price (USD/tonne) US CBOT Wheat Futures price (USD/bushel)
Source: Bloomberg Source: Thomson Reuters Datastream
DAP US Gulf Spot price (USD/tonne) US CBOT Soya bean Futures price (USD/bushel)
Source: Bloomberg Source: Thomson Reuters Datastream
150
250
350
450
550
650
Jan
Feb
Mar
Apr
May Jun
Jul
Aug
Sep Oct
Nov
Dec
2010-14 Range 2015 2016
2
4
6
8
10
Jan
Feb
Mar
Apr
May Jun
Jul
Aug
Sep Oct
Nov
Dec
Series1 2015 2016
200
250
300
350
400
450
500
Jan
Feb
Mar
Apr
May Jun
Jul
Aug
Sep Oct
Nov
Dec
Series1 2015 2016
3
4
5
6
7
8
9
10Ja
n
Feb
Mar
Apr
May Jun
Jul
Aug
Sep Oct
Nov
Dec
2010-14 Range 2015 2016
200
300
400
500
600
700
Jan
Feb
Mar
Apr
May Jun
Jul
Aug
Sep Oct
Nov
Dec
2010-14 Range 2015 2016
6
8
10
12
14
16
18
20
Jan
Feb
Mar
Apr
May Jun
Jul
Aug
Sep Oct
Nov
Dec
2010-14 Range 2015 2016
15
EQUITY NATURAL RESOURCES AND ENERGY
29 August 2016
Disclosure appendix
Analyst Certification
The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the
opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their
personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific
recommendation(s) or views contained in this research report: Kumar Manish and Thomas C. Hilboldt
Important disclosures
Equities: Stock ratings and basis for financial analysis
HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's
existing holdings, risk tolerance and other considerations and that investors utilise various disciplines and investment horizons
when making investment decisions. Ratings should not be used or relied on in isolation as investment advice. Different
securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations and
therefore investors should carefully read the definitions of the ratings used in each research report. Further, investors should
carefully read the entire research report and not infer its contents from the rating because research reports contain more
complete information concerning the analysts' views and the basis for the rating.
From 23rd March 2015 HSBC has assigned ratings on the following basis:
The target price is based on the analyst’s assessment of the stock’s actual current value, although we expect it to take six to 12
months for the market price to reflect this. When the target price is more than 20% above the current share price, the stock will
be classified as a Buy; when it is between 5% and 20% above the current share price, the stock may be classified as a Buy or a
Hold; when it is between 5% below and 5% above the current share price, the stock will be classified as a Hold; when it is
between 5% and 20% below the current share price, the stock may be classified as a Hold or a Reduce; and when it is more
than 20% below the current share price, the stock will be classified as a Reduce.
Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation or resumption of coverage,
change in target price or estimates).
Upside/Downside is the percentage difference between the target price and the share price.
Prior to this date, HSBC’s rating structure was applied on the following basis:
For each stock we set a required rate of return calculated from the cost of equity for that stock’s domestic or, as appropriate,
regional market established by our strategy team. The target price for a stock represented the value the analyst expected the
stock to reach over our performance horizon. The performance horizon was 12 months. For a stock to be classified as
Overweight, the potential return, which equals the percentage difference between the current share price and the target price,
including the forecast dividend yield when indicated, had to exceed the required return by at least 5 percentage points over the
succeeding 12 months (or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight,
the stock was expected to underperform its required return by at least 5 percentage points over the succeeding 12 months (or
10 percentage points for a stock classified as Volatile*). Stocks between these bands were classified as Neutral.
*A stock was classified as volatile if its historical volatility had exceeded 40%, if the stock had been listed for less than 12
months (unless it was in an industry or sector where volatility is low) or if the analyst expected significant volatility. However,
stocks which we did not consider volatile may in fact also have behaved in such a way. Historical volatility was defined as the
past month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating,
however, volatility had to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.
Rating distribution for long-term investment opportunities
As of 29 August 2016, the distribution of all independent ratings published by HSBC is as follows:
Buy 43% (25% of these provided with Investment Banking Services)
Hold 42% (26% of these provided with Investment Banking Services)
Sell 15% (18% of these provided with Investment Banking Services)
EQUITY NATURAL RESOURCES AND ENERGY
29 August 2016
16
For the purposes of the distribution above the following mapping structure is used during the transition from the previous to
current rating models: under our previous model, Overweight = Buy, Neutral = Hold and Underweight = Sell; under our current
model Buy = Buy, Hold = Hold and Reduce = Sell. For rating definitions under both models, please see “Stock ratings and basis
for financial analysis” above.
For the distribution of non-independent ratings published by HSBC, please see the disclosure page available at
http://www.hsbcnet.com/gbm/financial-regulation/investment-recommendations-disclosures.
To view a list of all the independent fundamental ratings disseminated by HSBC during the preceding 12-month period, please
see the disclosure page available at www.research.hsbc.com/A/Disclosures.
HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments, both equity and debt
(including derivatives) of companies covered in HSBC Research on a principal or agency basis.
Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment
banking, sales & trading, and principal trading revenues.
Whether, or in what time frame, an update of this analysis will be published is not determined in advance.
Economic sanctions imposed by the EU and OFAC prohibit transacting or dealing in new debt or equity of Russian SSI entities.
This report does not constitute advice in relation to any securities issued by Russian SSI entities on or after July 16 2014 and as
such, this report should not be construed as an inducement to transact in any sanctioned securities.
For disclosures in respect of any company mentioned in this report, please see the most recently published report on that
company available at www.hsbcnet.com/research. In order to find out more about the proprietary models used to produce this
report, please contact the authoring analyst.
Additional disclosures
1 This report is dated as at 29 August 2016.
2 All market data included in this report are dated as at close 28 August 2016, unless a different date and/or a specific time of
day is indicated in the report.
3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its
Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research
operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier
procedures are in place between the Investment Banking, Principal Trading, and Research businesses to ensure that any
confidential and/or price sensitive information is handled in an appropriate manner.
4 You are not permitted to use, for reference, any data in this document for the purpose of (i) determining the interest
payable, or other sums due, under loan agreements or under other financial contracts or instruments, (ii) determining the
price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument,
and/or (iii) measuring the performance of a financial instrument.
Production & distribution disclosures
1 This report was produced and signed off by the author on 29 Aug 2016 13:00 GMT.
2 In order to see when this report was first disseminated please see the disclosure page available at
https://www.research.hsbc.com/R/34/Fpr6H6R
17
EQUITY NATURAL RESOURCES AND ENERGY
29 August 2016
Disclaimer
Legal entities as at 1 July 2016
‘UAE’ HSBC Bank Middle East Limited, Dubai; ‘HK’ The Hongkong and Shanghai Banking Corporation Limited, Hong
Kong; ‘TW’ HSBC Securities (Taiwan) Corporation Limited; 'CA' HSBC Bank Canada, Toronto; HSBC Bank, Paris Branch;
HSBC France; ‘DE’ HSBC Trinkaus & Burkhardt AG, Düsseldorf; 000 HSBC Bank (RR), Moscow; ‘IN’ HSBC Securities and
Capital Markets (India) Private Limited, Mumbai; ‘JP’ HSBC Securities (Japan) Limited, Tokyo; ‘EG’ HSBC Securities
Egypt SAE, Cairo; ‘CN’ HSBC Investment Bank Asia Limited, Beijing Representative Office; The Hongkong and Shanghai
Banking Corporation Limited, Singapore Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul
Securities Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch; HSBC Securities (South
Africa) (Pty) Ltd, Johannesburg; HSBC Bank plc, London, Madrid, Milan, Stockholm, Tel Aviv; ‘US’ HSBC Securities (USA)
Inc, New York; HSBC Yatirim Menkul Degerler AS, Istanbul; HSBC México, SA, Institución de Banca Múltiple, Grupo
Financiero HSBC; HSBC Bank Australia Limited; HSBC Bank Argentina SA; HSBC Saudi Arabia Limited; The Hongkong
and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SAR; The Hongkong and
Shanghai Banking Corporation Limited, Bangkok Branch
Issuer of report
HSBC Securities and Capital Markets (India) Private
Limited
Registered Office
52/60 Mahatma Gandhi Road
Fort, Mumbai 400 001, India
Telephone: +91 22 2267 4921
Fax: +91 22 2263 1983
Website: www.research.hsbc.com
SEBI Reg No. INH000001287
CIN: U67120MH1994PTC081575
This document has been issued by HSBC Securities and Capital Markets (India) Private Limited ("HSBC") for the information of its customers only. HSBC Securities and Capital Markets (India)
Private Limited is registered as "Research Analyst" (Reg No. INH000001287), Merchant Banker (Reg No. INM000010353) and Stock Broker (Reg. No. NSE Cash -INB230791734, NSE F & O-
INF230791734, BSE Cash- INB010791730, BSE F & O- INF010791730) and regulated by the Securities and Exchange Board of India. If it is received by a customer of an affiliate of HSBC, its
provision to the recipient is subject to the terms of business in place between the recipient and such affiliate. This document is not and should not be construed as an offer to sell or the
solicitation of an offer to purchase or subscribe for any investment. HSBC has based this document on information obtained from sources it believes to be reliable but which it has not
independently verified; HSBC makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of
the Research Division of HSBC only and are subject to change without notice. From time to time research analysts conduct site visits of covered issuers. HSBC policies prohibit research
analysts from accepting payment or reimbursement for travel expenses from the issuer for such visits. HSBC and its affiliates and/or their officers, directors and employees may have positions
in any securities mentioned in this document (or in any related investment) and may from time to time add to or dispose of any such securities (or investment). HSBC and its affiliates may act
as market maker or have assumed an underwriting commitment in the securities of companies discussed in this document (or in related investments), may sell them to or buy them from
customers on a principal basis and may also perform or seek to perform investment banking or underwriting services for or relating to those companies and may also be represented in the
supervisory board or any other committee of those companies. Details of Associates of HSBC Securities and Capital Markets (India) Private Limited can be obtained from Compliance Officer:
Mudit Tayal, Email: [email protected] The information and opinions contained within the research reports are based upon publicly available information and rates of taxation applicable at
the time of publication which are subject to change from time to time. Past performance is not necessarily a guide to future performance. The value of any investment or income may go down
as well as up and you may not get back the full amount invested. Where an investment is denominated in a currency other than the local currency of the recipient of the research report,
changes in the exchange rates may have an adverse effect on the value, price or income of that investment. In case of investments for which there is no recognised market it may be difficult for
investors to sell their investments or to obtain reliable information about its value or the extent of the risk to which it is exposed.
HSBC Securities (USA) Inc. accepts responsibility for the content of this research report prepared by its non-US foreign affiliate. All U.S. persons receiving and/or accessing this report and wishing
to effect transactions in any security discussed herein should do so with HSBC Securities (USA) Inc. in the United States and not with its non-US foreign affiliate, the issuer of this report.
In the UK this report may only be distributed to persons of a kind described in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005. The protections
afforded by the UK regulatory regime are available only to those dealing with a representative of HSBC Bank plc in the UK. In Singapore, this publication is distributed by The Hongkong and
Shanghai Banking Corporation Limited, Singapore Branch for the general information of institutional investors or other persons specified in Sections 274 and 304 of the Securities and Futures
Act (Chapter 289) (“SFA”) and accredited investors and other persons in accordance with the conditions specified in Sections 275 and 305 of the SFA. This publication is not a prospectus as
defined in the SFA. It may not be further distributed in whole or in part for any purpose. The Hongkong and Shanghai Banking Corporation Limited Singapore Branch is regulated by the
Monetary Authority of Singapore. Recipients in Singapore should contact a "Hongkong and Shanghai Banking Corporation Limited, Singapore Branch" representative in respect of any matters
arising from, or in connection with this report. In Australia, this publication has been distributed by The Hongkong and Shanghai Banking Corporation Limited (ABN 65 117 925 970, AFSL
301737) for the general information of its “wholesale” customers (as defined in the Corporations Act 2001). Where distributed to retail customers, this research is distributed by HSBC Bank
Australia Limited (AFSL No. 232595). These respective entities make no representations that the products or services mentioned in this document are available to persons in Australia or are
necessarily suitable for any particular person or appropriate in accordance with local law. No consideration has been given to the particular investment objectives, financial situation or particular
needs of any recipient. This publication is distributed in New Zealand by The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SAR.
In Japan, this publication has been distributed by HSBC Securities (Japan) Limited. In Hong Kong, this document has been distributed by The Hongkong and Shanghai Banking Corporation
Limited in the conduct of its Hong Kong regulated business for the information of its institutional and professional customers; it is not intended for and should not be distributed to retail
customers in Hong Kong. The Hongkong and Shanghai Banking Corporation Limited makes no representations that the products or services mentioned in this document are available to
persons in Hong Kong or are necessarily suitable for any particular person or appropriate in accordance with local law. All inquiries by such recipients must be directed to The Hongkong and
Shanghai Banking Corporation Limited. In Korea, this publication is distributed by The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch ("HBAP SLS") for the
general information of professional investors specified in Article 9 of the Financial Investment Services and Capital Markets Act (“FSCMA”). This publication is not a prospectus as defined in the
FSCMA. It may not be further distributed in whole or in part for any purpose. HBAP SLS is regulated by the Financial Services Commission and the Financial Supervisory Service of Korea.
In Canada, this document has been distributed by HSBC Bank Canada and/or its affiliates. Where this document contains market updates/overviews, or similar materials (collectively deemed
“Commentary” in Canada although other affiliate jurisdictions may term “Commentary” as either “macro-research” or “research”), the Commentary is not an offer to sell, or a solicitation of an
offer to sell or subscribe for, any financial product or instrument (including, without limitation, any currencies, securities, commodities or other financial instruments).
© Copyright 2016, HSBC Securities and Capital Markets (India) Private Limited, ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or
transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of HSBC Securities and Capital Markets (India)
Private Limited. MCI (P) 094/06/2016, MCI (P) 085/06/2016 and MICA (P) 021/01/2016
[525552]
Metals and Mining
EMEA Emma Townshend +27 21 794 8345 [email protected]
Derryn Maade +27 11 676 4519 [email protected]
Kirtan Mehta, CFA +91 80 4555 2752 [email protected]
Anshul Gadia, CFA +91 80 4555 2754 [email protected]
North America & Latin America James Steel +1 212 525 3117 [email protected]
Jonathan Brandt, CFA +1 212 525 4499 [email protected]
Botir Sharipov, CFA +1 212 525 5150 [email protected]
Asia Head of Resources & Energy Research, Asia-Pacific Thomas C. Hilboldt, CFA +852 2822 2922 [email protected]
Jeff Yuan +852 3941 7010 [email protected]
Brian Cho +822 3706 8750 [email protected]
Jigar Mistry, CFA +91 22 2268 1079 [email protected]
Rajesh V Lachhani +91 22 6164 0687 [email protected]
Energy
Europe Global Sector Head, Oil and Gas Gordon Gray +44 20 7991 6787 [email protected]
Kim Fustier +44 20 3359 2136 [email protected]
Christoffer Gundersen +44 20 7992 1728 [email protected]
Abhishek Kumar +9180 4555 2753 [email protected]
CEEMEA Bülent Yurdagül +90 212 376 46 12 [email protected]
Ildar Khaziev, CFA +7 495 645 4549 [email protected]
Latam Lily Yang, CFA 1 212 525 0990 [email protected]
Asia Head of Resources & Energy Research, Asia-Pacific Thomas C. Hilboldt, CFA +852 2822 2922 [email protected]
John Chung +8862 6631 2868 [email protected]
Tingting Si +852 2996 6590 [email protected]
Dennis Yoo, CFA +852 2996 6917 [email protected]
Shishir Singh +852 2822 4292 [email protected]
Kumar Manish +91 22 2268 1238 [email protected]
Alok P Deshpande +91 22 2268 1245 [email protected]
Eric Chen +8862 6631 2870 [email protected]
Chemicals
CEEMEA Yonah Weisz +972 3 710 1198 [email protected]
Sriharsha Pappu, CFA +971 4 423 6924 [email protected]
Nicholas Paton, CFA +971 4 423 6923 [email protected]
Prateek Bhatnagar +9180 4555 2757 [email protected]
Asia Dennis Yoo, CFA +852 2996 6917 [email protected]
Latam Eduardo Altamirano +1 212 525 8333 [email protected]
Kevin R Gonzalez +1 212 525 4394 [email protected]
Lily Yang, CFA 1 212 525 0990 [email protected]
Utilities
Europe Adam Dickens +44 20 7991 6798 [email protected]
Verity Mitchell +44 20 7991 6840 [email protected]
Pablo Cuadrado +34 91 456 62 40 [email protected]
Charanjit Singh +91 80 3001 3776 [email protected]
Asia Regional Head Utility & Alternative Energy Evan Li +852 2996 6619 [email protected]
Jigar Mistry, CFA +91 22 2268 1079 [email protected]
Summer Y Y Huang +852 2996 6976 [email protected]
Yeon Lee +822 3706 8778 [email protected]
Simon Fang +852 2914 9973 [email protected]
Latin America Lily Yang, CFA 1 212 525 0990 [email protected]
CEEMEA Dmytro Konovalov +7 495 258 3152 [email protected]
Alternative Energy Sean McLoughlin +44 20 7991 3464 [email protected]
Evan Li +852 2996 6619 [email protected]
Charanjit Singh +91 80 3001 3776 [email protected]
Simon Fang +852 2914 9973 [email protected]
Specialist Sales
James Lesser +44 20 7991 1382 [email protected]
Thomas White +44 20 7991 5996 [email protected]
Global Natural Resources & Energy Research Team