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Refineries and Marketing companies perform as expectedů - Views on News from Equitymaster
 
 
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  • Jun 1, 2000

    Refineries and Marketing companies perform as expectedů

    Sometimes the markets are right. The refining sector was out of favour in FY00 and rightly so. This was largely because margins were under a squeeze. The markets continue to trade these companies at multiples of 3 and 4. It is signaling that it does not expect the margins of the refiners to improve in the near term.

    In the last couple of days three companies from this sector have declared their results for FY00 (Bharat Petroleum, Hindustan Petroleum, Cochin Refineries) and although all have registered topline growth in excess of 35%, their margins have come under squeeze. Both the operating profit and net profit margins have declined.

    (Rs m) BPCL HPCL
      FY99 FY00 FY99 FY00
    Sales 215,998 333,847 239,640 338,309
    Operating Profit 13,767 15,895 15,240.0 15,998
    OPM (%) 6.4 4.8% 6.4 4.7%
    Net Profit 7,013.0 7,039 9,013.0 10,574
    NPM (%) 3.2% 2.1% 3.8% 3.1%

    The margins have come under squeeze largely due to the increase in crude oil prices, which is the feedstock for these companies. The prices of crude continue to hover at $30/bbl and show no signs of letting up. If this continues these companies are not expected to improve their margins in FY01.

    The improvement in margins can be expected on two counts either the prices of crude decline or these companies integrate further into the energy chain especially, marketing & distribution where margins are higher. The margins on marketing and distribution may further increase post 2002 with dismantling of the administered pricing mechanism. Thus these stocks should come into favour if the Government permits consolidation and abides by its deregulation schedule.

     

     

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