The Indian Oil Corporation (IOC) scrip gained as much as 7.26% in the intra-day trade on Friday, a day after the empowered group of ministers (EGoM) gave approval to block deal sales of the government’s stake in IOCL to narrow the fiscal deficit.
Shares of other oil marketing companies (OMCs) like Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) gained as much as 3.66% and 5.27%, respectively, with analysts believing stabilising rupee and falling crude prices would cut the under-recoveries. In current calendar year, crude prices have corrected 4.4%.
“Crude prices are likely to remain range-bound and we don’t expect rupee to depreciate further,” said an oil & gas analyst with a leading brokerage. Crude was trading at $106.5 per barrel at 7.30 pm IST. Meanwhile, rupee has stabilised at 61.55 levels against dollar after falling as low as 68.82 in 2013.
Crude prices have softened with non-Opec nation (Organisation of Petroleum Exporting Countries) such as US ramping up its production. On Friday, IOC ended 5.9% higher to close at R224.5. While HPCL gained 4.85% to end at R236.55, BPCL closed at R339.45, up 2.77%.
On Thursday, EGoM had approved sale of government’s 10% stake in IOC to state-owned upstream operators ONGC and OIL. The 19 crore share sale would fetch the government R4,301 crore at current market price. The government’s divestment target for current fiscal is pegged at R40,000 crore.
Experts feel OMCs are undervalued as the shares have been under selling pressure in the recent past with IOC correcting 20.65%, HPCL shedding 18.33% and BPCL losing 2.36% in 2013. “We are positive on the downstream companies. We feel they are undervalued. With oil prices falling, under-recoveries have come off and are currently at six-month low,” said Rajat Rajgarhia, director (research), institutional equities, Motilal Oswal Financial Services.
In a recent research note, Japanese brokerage Nomura said among oil PSUs, OMCs are preferred over upstream oil PSUs on the basis of valuations. As per Bloomberg, IOCL currently trades at 12-month p/e multiple of 12.25, BPCL trades at p/e multiple of 13.05, while HPCL is at p/e multiple of 15.9.