Street keeps faith in oil refiners

The shares of oil marketing companies (OMCs) have been firming up in the current financial year though the Indian crude oil basket is quoting above $65 a barrel, as investors took long-term.

"The stocks of the oil marketing companies, which also own crude oil refineries, are being driven by long-term investors," said Harendra Kumar, research head at ICICI direct.

Analysts said the bleak situation prevalent a couple of months ago, when these companies were hit by rising oil prices and a cut in the retail price of auto fuels, no longer exists.

Under-recoveries though on the rise, are seen as short-term in nature, since the global crude oil prices are expected to correct to $55-$62 in the long term.

"Investors are thus taking long-term positions in view of the crude oil outlook," a Mumbai-based analyst said.

The share prices of three OMC have increased since the beginning of April. Indian Oil Corporation (IOC), which is the largest marketer of petroleum products as well as the largest refiner in the country, has seen its share price rise by 6.86 per cent in the month so far.

Hindustan Petroleum (HPCL) has gained 6.60 per cent and Bharat Petroleum (BPCL), 8.99 per cent. The Sensex has gained 10.03 per cent during the same period.

During the last quarter (January-March), IOC's share price had dropped 9.54 per cent, HPCL's 10.20 per cent and BPCL's 7.05 per cent.

The appreciating rupee is also favouring the oil companies. Almost 78 per cent of the country's crude oil needs are imported and with the rising rupee, the refiners can buy more crude oil for the same amount of money. The rupee has appreciated by over 3.5 per cent over the last month.

"The talk of elimination of octroi in certain states and phasing out of the subsidy on LPG, have also boosted the share prices," Kumar said.

The oil marketing companies, IOC, HPCL and BPCL are experiencing combined losses of more than Rs 140 crore a day, as a result of selling petrol, diesel, kerosene and LPG below the market prices.

The government is subsidising the four petroleum products through oil bonds. Oil bonds worth almost Rs 24,000 crore were disbursed in the last financial year.

"Value-addition in terms of backward integration by the oil companies have also sent out positive signals," a Delhi-based analyst with an international consultancy said.

The market value of the companies is expected to rise, given the expansion plans into areas such as exploration, production of oil and gas, and petrochemicals .

"Sentiments are very positive and the value of the oil marketing companies is likely to be unlocked very soon," Kumar said.