The Hindu Business Line : Oil marketing stocks turn top draws

Back in action
Companies ride on expectation of improved results, better outlook
Retail fuel price hike, hopes of continuation of subsidy sharing mechanism add to optimism

Kolkata May 7 After almost a year-long lull, PSU oil refining and marketing stocks - including the standalone refineries - are suddenly back in action. All seven PSU stocks including IOC, IBP, BPCL, HPCL, BRPL, MRPL and CPCL appreciated by 15 to 23 per cent during the last one month. This is against a BSE Sensex growth of 7.95 per cent during the corresponding period.

"All these stocks have been under-performing since May 2006 when they touched their 52-weeks high. However, during the last one month they outperformed the market growth riding on the expectation of improved results in 2006-07 and a comparatively better outlook in the current fiscal," said Mr Rohit Nagraj of Angel Broking.

Contributing factors

The benefits of an appreciating rupee and reasonably high refining margin due to product price volatility against a comparatively stable crude price have brightened the outlook of the standalone refineries such as BRPL, MRPL and CPCL during the current quarter. The stocks grew by 23 per cent, 21 per cent and 18 per cent respectively during the last month.

BRPL ended the day at Rs 49.55, up by 1.85 per cent compared to its previous close while MRPL finished at Rs 40.55 (0.75 per cent) and Chennai Petro (CPCL) at Rs 220.70 (-1.01 per cent).

In addition to the benefits of high GRM and appreciating rupee, investors' confidence in refining and marketing stocks such as IOC, BPCL and HPCL was further boosted by a combination of factors like hike in retail fuel prices and continuation of subsidy sharing mechanism similar to the last fiscal.

While there is strong expectation of a retail fuel price hike later this month, market sources are pinning hopes on the last year's precedence of issuing of oil bonds for subsidy sharing by upstream companies.

Clarity

"Compared to the last fiscal when there was all round uncertainty about the fate of these companies in the face of mounting loss in fuel retailing business, there exists a degree of clarity on Government policy and the expected fiscal supports, in this fiscal," Mr Nagraj said.

Rupee appreciation would also offer a substantial breather to these companies in terms of an easier cash flow situation, lower interest pay out on foreign currency loans and savings on project costs.

According to available estimates, IOC would be saving close to Rs 250 crore a year on interest for every 100 paise strengthening of the Indian currency.

The IOC stock moved up to Rs 460 on May 7, up by over 18 per cent from April 5. The stock grew by 4.73 per cent during the last one week. BPCL and HPCL both increased by over 15 per cent during last one month to end at Rs 350 and Rs 288.65 respectively.

Star performer

The star performer of the month was IBP. Riding presumably on the merger expectation the scrip rose 23 per cent during the last one-month to Rs 491 on May 7. The stock increased by 11.44 per cent during the last week following the merger of IBP with IndianOil.

IBP stands merged with IOC with effect from May 2.