Petro Hike Fears Fuel Refinery Stocks

While stockmarkets have been expecting a hike in petroleum products for quite a long time and an overall bearish sentiment has prevailed on account of the same, the refinery counters notably HPCL and BPCL have gained in the past one month.

A high ranked HPCL official said the company is essentially conservative with an eye on the bottomline which is not the case for some of its competitors. The ongoing Arthur Andersen study on business process re-engineering will add to the bottomline of the company, he added. The company hires the lowest manpower among refinery companies in spite of having two refineries, according to a study recently conducted by a foreign brokerage firm. Data collated by the BS Research Bureau shows that the HPCL counter was the highest gainer among the PSU refinery stocks. The stock has gained by Rs 32.50 in over a month. Analysts from a UK-based brokerage said that while the stockmarket has already discounted an oil price hike of up to 15 per cent, the recent spurt in HPCL and BPCL are mainly on account of their profitability expectations.

 

The stockmarkets are still not thinking on terms of a scenario where the refinery stocks will be benefitting on account of an oil price hike, an analyst added.

According to Dwivesh Desai, head of research, Shriram AMC: Counters like IOC, HPCL, BPCL, Cochin Refineries, Madras Refineries and MRPL are likely to benefit on account of a price hike in petroleum products.

According to him, the government is expected to announce some policy decisions on crude oil and if this happens, companies like Hindustan Oil and ONGC would also benefit.

While marketmen are expecting existing refinery companies to move up once the oil price hike is effected, they are unsure of the prospects of companies like Reliance Petroleum and Essar Oil.

They (the new players) would probably miss the bus this time and would take some time to catch the attention of investors, commented a source from a city-based corporate brokerage.

Stockmarket analysts also commented that it is a matter of time before the Centre considers the scrapping of the administered price mechanism. Once that happens companies like IOC, HPCL and BPCL who have refineries as well as an extensive marketing network in place will benefit, a market source said.

Marketmen said that there are rumours floating in stockmarket circles about the imminent merger of Bongaigaon Refinery with the oil major IOC. After this, even other smaller refineries could be merged, they commented.