INSUBCONTINENT EXCLUSIVE:
NEW DELHI: While the Opec decision to increase crude output by 1 million barrel a day still looks hazy in details, analysts say outlook of
Indian oil marketing companies (OMCs) will improve substantially should the move result in a drop in crude oil prices.
The oil marketing
segment accounts for 28 per cent to 49 per cent of revenues of OMCs
Diesel and petrol marketing alone contributes 21-37 per cent of total profit margins
A fall in crude prices will help protect margins.
"We continue to prefer OMCs," said Motilal Oswal Securities
The brokerage noted that the auto fuel prices have already got used to $75 a barrel Brent level
If oil prices do not rise from here, there will be low-risk to auto fuel margins
At 12.30 pm IST Monday, Brent futures for August delivery traded 1.68 per cent lower at $74.30 a barrel
Brent traded at sub-$50 level around this time last year.
Experts said the intention by Opec nations to increase crude oil output for the
first time since 2005 was a tipping point in the changed dynamics.
In January last year, Opec non-Opec countries had decided to cut crude
production by 1.8 million a day
But a sharp fall in Venezuelan output lifted that compliance rate to 141 per cent for Opec nations and 95 per cent for non-Opec nations
during the October-May period.
"IEA records a surplus capacity of 2.7 million barrels a day, while Saudi Arabia, Iraq and Kuwait could
manage to balance any possible supply shocks from other countries
A balanced oil market is expected to bring provide the much required relief to Indian OMCs," Motilal Oswal Securities said.
Valuations at
OMCs stocks have traditionally been very low.
They will continue to remain low as well in the near future, but that is the safe part of the
There is a debate going on whether petrol and diesel should also come under the regime, maybe through a separate structure
Both these developments will be positive for the OMCs," Sabarad told ETNow.
Gurmeet Chadha, Co-Founder at Complete Circle Consultants, sees
a lot of deep value in OMCs.
"Never in my life have I seen oil price hike for 16 consecutive days, followed by a correction for five
The government is trying to give a policy response to oil price
BPCL is a great franchise
If you see, it has a great marketing investment, not only through retail outlets, but also in depots, installations, LPG distributors,
aviation service stations
We are seeing an improvement in marketing margins, especially for diesel
That is going to add to bottom line," Chadha said.
Chadha said BPCL is the only company with return on equity of 30 per cent
Considering the kind of correction the stock has seen, it could be a good buy
One should buy it in a staggered manner over the medium term, he said.
Motilal Oswal Securities prefers IOC
"We expect Ebitda and PAT CAGR of 10 per cent for the company during FY18-20E
Dividend yield is strong at 6 per cent
FCF yield remains healthy at 7.5 per cent
