The Hindu Business Line : PSU oil, refinery stocks decline

BPCL, HPCL, Indian Oil, Bongaigaon Refinery, Kochi Refinery declined today on reports that the Government may cut customs duties on crude and petroleum products, thereby reducing the protection enjoyed by domestic companies.

Oil PSUs, which were witnessing pressure during the last two months, have been on a roller coaster ride post-elections; equity markets dropped 12 per cent while oil stocks have corrected 23-25 per cent.

However, analysts maintain that given that global refining margins are at a high, this is the best time to announce a cut in customs duty and reduce protection for the refining sector. There is a perception that with oil companies contributing about 24 per cent of the Indian market cap and almost 31 per cent of the corporate sector profits, it is time to look at fundamentals and start buying battered stocks.

"Oil market cap as a proportion of the Indian equity markets is one of the highest. It is even higher on profits and dividends. With almost 55 per cent of PBT of all oil companies flowing directly to the Government in the form of corporate tax, dividend (Govt share) and dividend tax, we believe that the Government will not hurt earnings of oil companies," the head of research of a reputed brokerage said.

According to Mr Amitabh Chakraborty, Vice-President, Head of Research, Kotak Securities, a cut in excise duty, import duty and an increase in product prices is a definite positive for marketing companies. "HPCL, BPCL and IOC stand to benefit from this move. However, pricing power of refineries will go down by differential," he added. He said at these levels HPCL, BPCL are attractively valued.

In fact, having factored in the cut in customs duty and hike in product prices, the risk to future earnings should be considerably reduced. "We think this will lead to R&M stocks rising despite fall in margins. In fact, with lower customs duties already factored in the earnings the companies will now track global trends," an analyst tracking the sector said.

As per analyst estimates based on the Kelkar Committee recommendations, a Rs 3.5-4/litre hike in petrol prices and a average Rs 1.25/litre (Mumbai Rs 1.37, Delhi Rs 1.14) hike in diesel will offset the impact of crude prices.

The stock of HPCL ended at Rs 347.95, down 2.56 per cent with around 13.62 lakh shares traded on the NSE, while BPCL ended at Rs 352.10, down 2.30 with around 8.56 lakh shares traded.

IOC ended 3 per cent weak at Rs 384.45 with around 4.65 lakh shares traded, while Bongaigaon Refineries ended at Rs 60.65, down 2.80 per cent with around 11.73 lakh shares traded.

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