Notwithstanding the incremental progress towards resolution of a longstanding receivables issue and favorable outlook on transportation fuel growth, the unraveling of timing losses and repeat of FX losses may drag 4Q earnings and will dominate market’s near-term focus, in our view.
Post the 8% correction in the stock price from its recent peak, PSO’s valuations (at FY13E P/E of 3.7x) are hovering at one of the lowest levels in recent times and should limit further downside in PSO’s stock, in our view.
PSO stands to benefit from a structural positive in the budget in the form of higher prices of CNG, alterative fuel to gasoline/HSD as volume growth may accelerate to 9-10% pa post expected narrowing of price gap.
We estimate the combined impact of inventory losses+ FX losses may result in PRs3.5-4bn (PRs13-PRs15/sh) drag on 4QFY12E earnings, more than what our conservative FY12 EPS estimate of PRs57.6 (9MFY12 of PRs52.3) already reflects.
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