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| According to a section of analysts, HPCL and BPCL look good even without the divestment angle |
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| Ever since the government declared its intention to rope in a strategic private sector partner for India's bluechip oil PSUs HPCL and BPCL in early 2002, the markets have been gung-ho about the scrips. |
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| Investment banks and security firms came out with buy calls on these companies and before long the two were among the hottest properties on domestic bourses. |
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| However, it has not been a joyride for investors as the centre kept doing flip-flops on its intentions. The result: an equally volatile market reaction, which has tended to go by news flows in these counters. |
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| The latest of these setbacks took place on September 15, with the Supreme Court deciding to stay the disinvestment process of HPCL and BPCL, saying it required Parliamentary approval. |
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| The markets were quick to react with the HPCL scrip plunging by 11.64 per cent and BPCL down by nearly three per cent on that day. |
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| Now, the question is whether these companies deserve their current valuations if they remain as PSUs, given that they are well-run, cash-rich companies. |
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| While HPCL is one of the country's largest companies with a turnover of Rs 50,000 crore for FY03, BPCL has excelled in marketing and customer initiatives. |
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| Moreover, both companies reported an improvement in profits after deregulation. While HPCL posted a net profit of Rs 1,537.36 crore for the year ended March 31, 2003, an increase of 95.08 per cent, BPCL recorded its highest turnover of Rs 56,818 crore and profit after tax of Rs 1,822 crore. |
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| But despite these heartening results, the real test of their competitive abilities will come when the private sector players start putting their own retailing infrastructure in place. |
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| According to Satyam Aggarwal, research analyst, Motilal Oswal Securities, HPCL and BPCL look good even without the disinvestment angle. |
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| "Both are good companies with attractive valuations and strong fundamentals." |
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| Add a good dividend payout history and the question arises whether disinvestment is just much ado over nothing. Some analysts say if these companies can maintain good corporate performances and maintain past dividends, shareholders should not worry too much about the disinvestment part. |
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| That theory rings true, especially in the case of IBP, which had risen from near Rs 200 levels to Rs 900 in the immediate aftermath of IOC's acquisition of the government's 33.58 per cent in the company. IOC paid Rs 1,551 per share of IBP for acquiring the stake. |
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| However, in the months that followed the stock price saw a decline to its pre-sale days (Rs 195 in March 2003) before rebounding to Rs 813 currently. |
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| Analysts, however, disagree with the idea of treating oil as a strategic industry that should always stay within government control. |
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| "If you live in a free-market economy, then you have to live by the rules," says Jamshed Desai, head of research at Taib Securities. |
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| But from an investor point of view, most analysts are sanguine that disinvestment need not be a sticking point. "The question is not about the fundamentals of the companies involved. It is about government principles," says Desai. |
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| "HPCL and BPCL should be disinvested," affirms Tejas Doshi, head of research at Mumbai-based securities firm Sushil Finance. |
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| "If these two companies get a fair valuation during disinvestment, that could have a positive impact on the whole privatisation agenda of the government," notes Doshi. |
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| What about the bottlenecks then, like the Supreme Court verdict? Doshi is unfazed. |
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| "If the Supreme Court decided it must be done the proper way, there is nothing wrong in that. It is up to the government to do the necessary ground work and make the disinvestment happen," he points out. |
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| "It is a question of when rather than if. I am sure the oil disinvestments will happen in due course," hopes Doshi. |
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Advocates of oil firms
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