Dec 28, 2001|
RPL: Reverting to fundamentals
Over the current week refinery stocks have come in for a round of bashing. Reliance Petroleum (RPL) scrip, which had charted a recovery over the past two months, has given back all those gains. The scrip has fallen 24.4% in the month of December '01, as compared to the Sensex, which has declined by 4.4%.
Despite softer oil prices, refining margins, reportedly, continue to remain thin. The slowdown across the globe is likely to have impacted refined products realisations. Nevertheless, companies are likely to get some respite in margins with lower oil prices. RPL, currently, markets its products through the Government designated agencies, which include 50% through Indian Oil Corp. (IOC) and the rest equally through Hindustan Petroleum (HPCL) and Bharat Petroleum (BPCL).
As per the original administered pricing mechanism (APM) dismantling schedule, the oil & gas sector is to be completely deregulated by April '02. Under the deregulated environment, the Oil Coordination Committee (OCC) is not likely to look into evacuation of petroleum products from the refinery. All parties are to fend for themselves and have to establish strategies for getting their products to the market. RPL, reportedly, has entered into an understanding with IOC for evacuation of products in the post APM period. As per the agreement, IOC is to lift 50% of saleable products while the rest is likely to be marketed by a joint venture (JV) between RPL & IOC.
That said, current status on the understanding is a bit murky. There has still not been any announcement on forming the JV. Also, IOC, reportedly, is not very happy about evacuating 50% of the saleable products. Turn in thinking is likely due to poor petroleum consumption growth in the past two years. IOC does not want to saddled with excess products, which could adversely impact the company's refinery operating rates.
At Rs 26.5, the RPL stock is trading on a multiple of 8x 1HFY02 earnings. At current valuations, the scrip is more in line with its international peer group and exposure to the stock could imply betting on growth.
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