Notwithstanding the progress in its refinery expansion plans, which should boost output and margins, Essar Oil has had a tough run on the bourses for quite some time now. In the latter part of the last calendar, weak refining market, forex losses, and alleged involvement of a group company in the 2G scam proved to be a drag.

The bigger setback came in January when Essar Oil lost the crucial sales tax deferment case in the Supreme Court. The dispute was centred on Essar Oil's eligibility for sales tax deferment under an erstwhile incentive scheme of the Gujarat Government. Since Essar Oil's Vadinar refinery commenced operations later than the specified time, the Gujarat Government held the company ineligible for the benefit.

Essar Oil contended that reasons beyond its control, primarily the 1998 cyclone, caused the delay. Reversing the verdict of the Gujarat High Court which had ruled in the company's favour, the Supreme Court directed Essar Oil to refund the benefit. Given the significant liability amount (around Rs 6,300 crore) and the impact on future profitability, the Essar Oil stock took a sharp knock. Though the company has filed a review petition in the Supreme Court, the outcome remains uncertain.

Also, Essar Oil recently lost an insurance claim for damages to its refinery during the 1998 cyclone. The high debt levels of the company have also not helped market sentiment.

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