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Energy: Slowdown taking effect

Aug 28, 2001

In FY01, refining stocks were the hot picks with most counters outperforming the benchmark indices. However, in the new fiscal these stocks have done a volte face, having run out of gas. Key pivotals of the sector; Hindustan Petroleum (HPCL), Indian Oil (IOC) and Reliance Petroleum (RPL) have declined by 14.8%, 18.6% and 13.8% respectively since start of the year. Over the same period the Sensex has dipped by 7%.

Among the key reasons for markets abandoning the sector is the sharp slowdown in the economy in 2001, especially in the core sector. Refining, in fact, is the only core sector component to report positive growth for 1QFY02. Crude throughput over this period increased by 6.4%. This, however, is much lower than the 34.5% growth registered in the same quarter of the previous year.

Utilisation Rates
IOC 90.1%
RPL 111.6%
HPCL 91.9%
BPCL 125.6%
As per the Centre for Monitoring the Indian Economy (CMIE), operating rates of the industry have risen from 87.2% in 1QFY01 to 92.8% in 1QFY02. This is due to the rise in crude throughput. Also, RPL has been a major contributor to the rise in operating rates. Utilisation at the RPL plant increased from 86.2% to 111.6% over the concerned periods. However, as per media reports, the company has raised objections with authorities for not being treated similar to public sector oil companies. RPL believes it is being used as a swing plant for covering up any shortage of products in the country. Prima facie, though, the numbers seem to reflect the contrary.

The slowdown in product off-take and the relatively high crude oil prices has affected sentiment in the sector. April '02 is likely to see deregulation in marketing of vehicular fuels. Also, the oil pool mechanism could be done away with. Consequently, this could once again bring the sector into favour.

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