Petrol price rise fails to cheer oil stocks

Oil stocks failed to perform on Monday despite the petrol price rise last week. Though, in the initial part of the trading session there were some upside movement but all stocks ended in the red due to lack of clarity on the roadmap of further price rises.

Shares of Bharat Petroleum Corporation (BPCL) slipped 1.08 per cent to close at Rs 652.05 while stocks of Hindustan Petroleum Corporation (HPCL) were 0.65 per cent down. Indian Oil Corporation closed 0.79 per cent weak while Oil and Natural Gas Corporation (ONGC) declined 2.36 per cent.

With expectation of higher under-recoveries in the current financial year, which is estimated to cross Rs 1.25 lakh crore against Rs 78,000 crore in FY11, industry analysts say unless the government comes up with a concrete plan for assisting oil companies, growth of the companies will be restricted.
 

STOCK MOVEMENT
Company	Closing price (Rs/share)	Change (%)	Return so far in FY12 (%)	52-week high (Rs/share)
BPCL	652.05	-1.08	6.67	814.90
HPCL	382.15	-0.65	7.06	555.45
IOC	340.95	-0.79	2.00	458.90
ONGC	297.50	-2.36	2.55	368.00
Source: Bombay Stock Exchange

Arindam Pal, senior research analyst at Asian Market Securities, says, “Despite a Rs 5 a litre rise in petrol price, the under recovery on the product remains Rs 5 a litre. The big question is with a much larger under-recovery in diesel and liquefied petroleum gas (LPG), what call will the government take in raising price.”

The current loss to oil and marketing companies on diesel stands at Rs 18 a litre while on LPG it is more than Rs 300 a cylinder.

“The news about centre providing them (OMCs) subsidy as compensation for their revenue losses had acted as a positive trigger in the morning but they ended the day in negative,” adds Shanu Goel, senior research analyst at Bonanza Portfolio.

So far, in the current financial year, oil stocks have gained between 2 and 7 per cent in anticipation of fuel price rise. For instance, HPCL emerged as the top gainer with an increase of 7.06 per cent while that of BPCL was 6.67 per cent. Indian Oil Corporation could give a return of only 2 per cent while shares of ONGC gained 2.55 per cent during the first one-and-a-half month of the current year. Whether stocks can further gain from here?

“Long-term outlook seems bleak as no certainty is emerging. Market participants on Monday realised that a rise of Rs 5 in petrol was not enough,” says Pal.

“If the fuel price rise keeps getting delayed the gap (under-recoveries) will only widen unless crude cools off,” he further adds.

Sector analysts opine that oil stocks can see further gain only when there is a concrete roadmap of price increases. “For instance, in case of diesel, despite a loss of Rs 18 a litre, one cannot expect prices to go up to the same in one go,” explains another oil analyst at a Mumbai-based brokerage house who did not wish to be named.

According to him, maximum rise in diesel could be between Rs 3 and Rs 5 a litre. “This wont help the oil companies and balance sheets of them will keep weakening down,” he adds.

Pal, who agrees, says OMCs have become weak financially and their results, too, would not be good. “Cost of borrowing for them is increasing as interest costs have moved up. This will further impact companies’ expansion plans as they do not have deep pockets.”

Industry experts have painted a negative outlook. “There can only be short term movement which will be news-driven,” adds an analyst.