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Energy Look a little deeper - Views on News from Equitymaster
 
 
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  • Jun 29, 2000

    Energy Look a little deeper

    There has been a lot of talk regarding the under valuation of refinery stocks. However, the stocks that come to mind are Bharat Petroleum (BPCL), Hindustan Petroleum (HPCL) and Indian Oil Corp. (IOC). Moreover, these stocks have more visibility because of the expected restructuring, disinvestment and deregulation in the industry and are touted to benefit greatly from such moves.

    If though, we dig a little deeper into the sector, there are quite a few attractive options available. The lesser known stocks tend to be ignored, as they are neither sector pivotal nor glamorous. One must remember, it is these stocks in which one can find a bargain as they are ignored by the market as compared to high profile companies for which markets work efficiently.

    which is cheaper?
    BPCL HPCL CRL MRL BRPL
    EPS 46.9 31.2 34.1 13.3 1.5
    P/E ratio 4.5 4.5 2.6 2.7 5.1
    Price/Book value 0.87 0.85 0.46 0.50 0.26
    Price 212.6 139.8 89.0 35.9 7.8
    52-week high 450.0 245.0 199.0 72.0 19.0

    As per the Nitish Sengupta committee IOC is said to be taking over Madras Refineries (MRL) and Bongaigon Refineries & Petrochemicals (BRPL) while BPCL will be acquiring Cochin Refineries (CRL) and Numaligarh Refineries (NRL).

    What could be the reason for their gross under valuation? One possible answer is that although, the Government has stated that it will restructure the sector it has delayed the process of merging stand-alone refineries with the larger companies. This has sent negative signals to the market. Consequently these stocks have reacted, as markets are apprehensive about the future of stand-alone refineries in the deregulated environment. However, the question is have they overreacted?

     

     

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