Many Vari­ables at Play, Oil Cos’ Val­u­a­tions may Slip

Could top­ple govt’s sub­sidy pro­jec­tions & ex­pected growth in ex­cise col­lec­tions from petrol, diesel; pro­posal for mega oil ma­jor lacks clar­ity

The Economic Times - - Smart -

Ex­cise col­lec­tion from petrol and diesel is ex­pected to grow by

to ₹ 21.5/litre in FY17 from ₹ 17.8 in the pre­vi­ous year. In case of diesel, it was raised to ₹ 17.3/litre from ₹ 10.7. The mar­ket­ing mar­gins on diesel and petrol are cur­rently at ₹ 1.8 per litre and ₹ 1.9 per litre, re­spec­tively. The mar­ket­ing arms of OMCs ac­counted for 60-76% of op­er­at­ing profit in the last fis­cal. Given this, mar­gin sus­te­nance is cru­cial for bet­ter earn­ings growth. It may come un­der pres­sure if crude oil prices con­tinue to rise.

The last fac­tor is the lack of clar­ity on the pro­posal to cre­ate an in­te­grated oil ma­jor. Bar­ring a big­ger bal­ance sheet that will al­low for in­ter­na­tional ac­qui­si­tions, an­a­lysts be­lieve that there are lit­tle syn­er­gies in the state-owned pe­tro­leum com­pa­nies due to a dif­fer­ence in work cul­ture. Also, since most of the oil PSUs are na­tion­alised by the act of Par­lia­ment, con­sum­mat­ing a large merger will be a com­plex and dif­fi­cult task. These fac­tors are ex­pected to weigh on the val­u­a­tions of oil stocks in the near term.

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