After almost four years in the woods, stock markets are looking at public sector oil companies with interest again. This has been due to a combination of stability in crude oil price coupled with hopes of reform in auto-fuel prices.
Following the FY10 results of public sector oil marketing companies — Bharat Petroleum, Hindustan Petroleum and Indian Oil, a number of market participants have also turned positive on the stocks.
Mumbai-based brokerage Motilal Oswal has a “Buy” rating on IOCL and BPCL. “We expect to get more clarity on retail fuel pricing and subsidy sharing post the government decision on the Kirit Parikh Committee recommendations.
Any partial deregulation (petrol/ diesel) and subsidy rationalisation will be positive for the stock in terms for earnings predictability and could result in re-rating,” the brokerage says.
Another brokerage house, Macquarie, has also come out with an “Outperform” rating on both the firms. This rating too, is based on the possibility of pricing reforms in the oil sector.
Analysts are hoping that the government may also usher in some price reforms for fuels such as diesel, petrol, LPG and kerosene.
For the past five years, the oil marketing firms have been selling their key fuels at a loss — with subsidies from the government and discounts from other firms making up the shortfall.
There is some hope now that this could change — due to the government’s move some weeks back to raise the price of natural gas sold by public sector oil firms ONGC and Oil India to $4.2/unit.
Crude oil prices have also moved in a range over the past several months, which would help reduce the pain of adjustment.
However, the oil firms are yet to hear of any such move. “We aren’t aware of any such move,” says Mr S.V. Narasimhan, director (finance), Indian Oil.
“We are just implementing what the government asks us to do.” IOC, along with the two other oil marketing firms lost a total of Rs 45,000 crore in FY10.
Oil marketing firms will be comfortable if crude oil price is around $53-54/barrel, he says, going by the current retail price of key fuels.