Jun 12, 2000|
Energy Sources - Wake up you bargain hunters.
The oil industry as a whole is trading at low multiples, historically this industry has traded at a P/E of 14 and the international majors are trading at P/E levels of 15. The huge discount maybe due to the uncertainty regarding the proposed deregulation and disinvestment in the industry. It provides an attractive opportunity to bargain hunters.
Although taking exposure to the industry maybe a good call, a company that one might want to consider is Bharat Petroleum Corporation Ltd. (BPCL). Over the past few years the company has made a concerted effort to evolve from a sleepy PSU to a more aggressive, market oriented institution and its effort stand vindicated by the market conferring a higher premium to the stock when compared to its counterparts.
A bullish sentiment on Bharat petroleum maybe justified for the following reasons:
- As per the Nitish Sengupta committee report, stand alone refineries namely Kochi Refineries Ltd. and Numaligarh Refineries Ltd. should be merged with BPCL. This will add 10.5 m tonnes of refining capacity as well as offer logistical advantages. The industry is expected to be deregulated by April 2002, industry restructuring should probably be completed prior to that date.
- As mentioned above the industry is expected to be deregulated, the Government has categorically stated that the oil industry is non-strategic and hence, privatisable. If the Government plans to divest its stake then deregulation cannot be rolled back if it expects a good price for sale of asset. Deregulation should increase marketing margins.
- Disinvestment itself will result in better valuation of the stock as management shifts to private hands as one can expect business decisions to be taken on economic grounds.
- The management has been proactive and is attempting retail thrust; it is aiming at branding its products and is also seeking to establish new revenue channels (convenient stores) from its retail outlets.
- The historical relationship between GDP growth and oil product demand has been 1.2, should the economy grow at a rate of 6.5%, oil demand can be expected to grow by 7.8%. Hence, even if BPCL’s expected earnings grow at industry rates its P/E of 4.6 is below this level.
In dealing with the Government it is hard to predict and this maybe the cause for its low valuation but for those who are willing to make a call on the Government, this stock offers a great opportunity. Should we ring the morning alarms for the bargain hunters?
More Views on News
Mar 27, 2017
GAIL (India) Ltd has announced results for the quarter ended December 2016. reported 9.4% year on year (YoY) decline in sales, while bottom-line grew 45.4% YoY.
Mar 17, 2017
ONGC has announced results for the quarter ended December 2016. The company has reported 9.2 % year on year (YoY) growth in sales, while bottom-line grew 197% YoY.
Jan 24, 2017
Oil India Limited announced results for the quarter ended September 2016. The company has reported an 6.5% and 7.8% Year on Year (YoY) decline in sales and net profit respectively during the quarter.
Dec 3, 2016
GAIL (India) Ltd has announced results for the quarter ended September 2016. The company has reported 16 % year on year (YoY) decline in sales, while bottom-line grew 180% YoY.
Nov 3, 2016
ONGC has announced results for the quarter ended September 2016. The company has reported 10.3 % year on year (YoY) decline in sales, while bottom-line grew 6.3% YoY.
More Views on News
Aug 17, 2017
A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.
Aug 10, 2017
Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.
Aug 16, 2017
The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?
Aug 10, 2017
Bitcoin hits an all-time high, is there more upside left?
Aug 16, 2017
Ensure your financial Independence, and pledge to start the journey towards financial freedom today!
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407