Nayara Energy: A Strategic Powerhouse with Robust Growth Potential Amidst Global Shifts
13 July 2024
Reference: https://www.business-standard.com/industry/news/state-run-refiners-in-talks-for-long-term- oil-import-deal-with-russia-124071100479_1.html
https://www.icra.in/Rating/GetRationalReportFilePdf?Id=127730
The long-term oil import deal that India's state-run refiners are negotiating with Russia presents significant benefits for Nayara Energy, making it a stellar investment opportunity. As a private refiner already engaged in term deals for Russian oil imports and part-owned by Russian oil major Rosneft, Nayara Energy stands to gain from several advantages:
Stable Supply: The deal ensures a predictable and stable supply of oil, which is crucial for Nayara Energy's operations. This stability is vital for maintaining consistent refinery output and meeting rising fuel demand in India.
Cost Efficiency: By securing oil imports at potentially discounted rates, Nayara Energy can reduce its raw material costs. This cost efficiency can enhance its competitiveness and profitability in the market.
Strategic Alignment: With India's expanding refining capacity and growing fuel demand, the deal aligns with Nayara Energy's strategic goals of scaling up its operations and increasing market share.
Enhanced Relationships: Being part of joint negotiations with state-run refiners and benefiting from long-term agreements strengthens Nayara Energy's relationship with both the Indian government and Russian suppliers, potentially opening up further business opportunities.
Market Positioning: As the largest buyer of discounted Russian seaborne oil, India, and by extension, Nayara Energy, is well-positioned to leverage this deal to secure favorable terms and reinforce its market position as a leading refiner in the region.
Nayara Energy (backed by Rosneft) has demonstrated remarkable financial growth, with a 923% increase in bottom-line growth in FY23. The company has transitioned from a low-margin business (<5% net profit margin) to a high-margin one (8%+ net profit margin) due to strategic macro shifts across the world, stemming from the Russo-Ukraine crisis. As the second-largest refinery in India, Nayara Energy has significant potential. The company has already achieved over ₹99,200 crore in sales in the first nine months of FY24, with annualized estimates for FY24 projecting top and bottom lines of approximately ₹1,32,000 crore and ₹12,400+ crore, respectively, indicating a stellar net profit margin of 9.4%. These figures translate to top and bottom-line growth of 13% and 32%, respectively, showcasing the dominance of economies of scale.
Currently, Nayara Energy's shares are trading at a forward P/E of 7.7, compared to its domestic peer Reliance Industries, which is trading at a current P/E of 31. The growth opportunities for Nayara Energy are immense, given its strong legacy, expertise, and expansion into the polymer business with the commencement of a 450 KTPA PP unit.
In summary, Nayara Energy's strategic oil deal with Russia, impressive financial performance, and expansion plans position it as a highly attractive investment opportunity. The company's ability to secure stable, cost-efficient oil supplies, coupled with its strong market positioning and significant growth potential, makes it a compelling choice for investors.
FY22 | FY23 | 9MFY24 | Annualized FY24 E | |
Revenue ₹ Cr | 93,888.80 | 1,17,386.80 | 99,237.60 | 1,32,316.80 |
PAT ₹ Cr | 921 | 9,426.20 | 9,325.50 | 12434 |
NPM | 1.0% | 8.0% | 9.4% | 9.4% |
