Oil stocks bear brunt of price cut

The cut will affect the already strained under-recoveries, which reflects in the market.

If you had 100 shares of the country's largest crude oil refiner and marketer "" Indian Oil Corporation (IOC) "" on November 28, the value of your stake would have been Rs 48,260, by Bombay Stock Exchange prices.

However, December 11 would have seen the value of your stake erode to Rs 42,180, a fall of 12.59 per cent or Rs 6,080.

You would have incurred similar losses if you owned shares in the other two state oil marketing companies "" BPCL and HPCL "" over the same period, when these companies bore the brunt of the cut in the prices of petrol and diesel announced on November 29, and implemented on November 30.

While industry observers were surprised by the price-cut, which the government was initially opposed to, some sector analysts said the hit on the valuation of the oil marketing companies was expected.

In fact, the impact could partially be buffered by bettering refinery margins. Also, the sale of high-margin products such as aviation turbine fuel and naphtha could help minimise the losses. "It's not such a dark story," said an analyst.

Expectedly, the largest player in the sector "" IOC "" has taken the biggest hit, with Rs 7,101.50 crore being shaved off its market cap on the BSE, which went down from Rs 56,368.16 crore on November 28 to Rs 49,266.66 crore on December 11.

This translates into a 12.59 per cent loss in total investor wealth. The company's share price on the BSE today stood at Rs 421.80, down 12.59 per cent from the November 28 close.

Hindustan Petroleum Corporation Ltd (HPCL) has lost 12.35 per cent, or Rs 1267.14 crore, in terms of market capitalisation, which stood at Rs 8,992.5 crore at the close of trading today.

Bharat Petroleum Corporation Ltd's (BPCL) numbers are down by 10.25 per cent (Rs 1,336.25 crore). Its market cap stood at Rs 11,691.84 crore today.

The HPCL stock has lost 12.34 per cent to stand at Rs 265 today. BPCL has lost 9.74 per cent to end today's trading at Rs 325.25, from Rs 360.35 on November 28.

Rohit Ahuja, research associate at ASK Raymond James, said: "The oil marketing companies had been operating at very narrow profit margins before the price cut on auto fuels. The cut is bound to affect the already strained under-recoveries, which reflects in the market. However, the price of crude oil will probably hover between $60 and $65 a barrel over the next 3-4 months. So, it is likely that prices of petroleum products will remain at current levels in the near future," he said.

Another industry watcher echoed the view. He said crude oil prices were bound to correct themselves from the $56-57 levels. However, under the current geo-political situation, oil prices were likely to stabilise.

"Speculative margins may cause prices to rise. These arise from reasons beyond human control," he said.