Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Energy: Is the optimism justified? - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Sep 22, 2004

    Energy: Is the optimism justified?

    After a mixed 1QFY05 performance by the energy stocks, the last one-month has seen major gains (in stock prices) across the energy spectrum with standalone refineries being the major gainers. Oil-marketing companies too have been trading amidst strength. Let us now analyze as to what are the factors that led to these gains:

    Aug-04 Sep-04 (%) change
    CPCL 143.0 173.5 21.3%
    BRPL 62.5 72.3 15.6%
    IOC 385.7 442.5 14.7%
    GAIL 173.1 197.3 14.0%
    BPCL 340.1 366.7 7.8%
    HPCL 314.0 336.7 7.2%

    • Government policies: At the end of 1QFY05, the government raised the prices of petrol, diesel and LPG and at the same time announced major excise duty cuts. This allowed energy companies some breathing space after a loss-making 1QFY05 (IBP witnessed a net loss while other marketing companies witnessed profit erosion). Further, in August, the government's major announcements regarding customs and excise duty cuts have resulted in a recovery in profits. Also, major duty cuts in LPG (liquefied petroleum gas) and kerosene led to reduction in under-recoveries suffered by the oil marketing companies. As a result, 2QFY05 results are expected to be better.

    • Strong growth in demand: During the first half of the fiscal year, the energy sector has witnessed strong growth in demand. To put things in perspective, diesel sales (constitutes nearly 40% of the petro-products basket) improved by nearly 12% while petrol sales grew at a rate of 9% YoY. At the same time, it is to be remembered that the industry had witnessed negative growth in these products during the last fiscal. Strong growth in LPG sales and the growing aviation sector have helped the sector recover from the 1QFY05 price freeze. Further, production of petroleum products grew at nearly 13% during 1QFY05.

    • Better capacity utilization: Uptrend in international crude prices backed by strong demand for petro-products led to robust refining margins. As a result, major refineries operated at more than 100% of their rated capacities, thus yielding the benefits of high refining margins. Also, better capacity utilization is likely to benefit the refineries in the coming period as a result of economies. We believe this trend is likely to continue in the medium term. Also, oil-marketing companies have stepped on the accelerator to increase capacities of their refineries so as to ride on the higher margins cycle.

    We believe the 2QFY05 has proved to be better than expected as far as industry volumes are concerned. Although, marketing margins have remained subdued, strong refinery margins have more than compensated for that loss. Integrated companies such as HPCL, BPCL and IOC are likely to be the major beneficiaries while Reliance Industries, which operates a standalone refinery at Jamnagar, has found it difficult to market its products in the domestic markets with offtake from the oil marketing companies declining by nearly 50% YoY. All in all, we believe the stock prices have already factored in these numbers and to that extent, some of the stocks seem to have stretched valuations in the short term, although long-term prospects for the industry in a growing economy look bright.



    Equitymaster requests your view! Post a comment on "Energy: Is the optimism justified?". Click here!


    More Views on News

    GAIL: A Good Show (Quarterly Results Update - Detailed)

    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.

    ONGC: Higher Realisations on Crude Support Performance (Quarterly Results Update - Detailed)

    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.

    Oil India Ltd: A weak quarter (Quarterly Results Update - Detailed)

    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.

    GAIL: A Robust Quarter (Quarterly Results Update - Detailed)

    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.

    ONGC: Lower Write-offs Support Performance (Quarterly Results Update - Detailed)

    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

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    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: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 17, 2017 (Close)