The Hindu Business Line : Oil marketing companies fare better than indices

Mumbai, Dec. 8 The stocks of oil marketing companies have declined much less than the benchmark indices over the last one-year period. Although the companies were not able to pass on the entire burden of rising crude prices to customers when oil prices were sky-rocketing, their margins are expected to show improvement now that crude prices have cooled, said market-men.

Indices’ losses

The benchmark indices, the BSE Sensex and NSE Nifty, shed 54 per cent in a year. The oil marketing companies have dipped between 22 per cent and 38 per cent.

Bharat Petroleum Corporation has fallen 22.4 per cent in since December, 2007; Hindustan Petroleum Corporation has dipped 25.3 per cent and Indian Oil Corporation has dropped 38 per cent. Small-cap oil marketing company, Castrol India, has gained more than 7 per cent since December last year.

The Government had last reduced the price of petrol and diesel in June when crude was quoting at around $140 a barrel. In July crude surged to an all time high of $147 before starting its downward descent. By November it had fallen to $50, but the Government still hadn’t cut fuel prices.

These stocks saw buying interest as falling crude prices meant the burden of under-recoveries would reduce for these companies and their margins would improve, said an analyst with a broking firm.

Stock price

In November, the stock prices surged between 19 per cent and 28 per cent, outperforming the benchmark indices which rose by 2 per cent.

“When crude rose, the Government increased the price of petrol. But even as crude started to decline from July onwards the prices weren’t reduced, which led to the margins improving and losses being minimised for OMCs,” said the head of research at a brokerage.

Share price

On Friday, Brent crude had dipped as low as $39.5.

The Government had on Friday reduced the price of both petrol and diesel. Marketmen feel that this could now adversely affect these companies as they’ll be burdened with higher interest payments, foreign exchange losses due to the depreciating rupee, inventory losses and a drop in refining margins.

This could explain the dip in their share prices on Monday even though the indices were up.

BPCL was down 4.16 per cent, HPCL 0.33 per cent, IOC 0.65 per cent and Castrol India 3.73 per cent on Monday.

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