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Look beyond divestment

Dec 31, 2002

The Indian bourses continue to revolve around the divestment bubble, US-Iraq tussle and the rising crude prices. The PSUs continue to be volatile driven by the 'yes', 'no' attitude in the cabinet. We try and look at some recent changes in the way PSUs, especially oil PSUs are looking at countering the future. It is only in the last couple of years that the markets have discovered PSUs. Much of this interest has infact stemmed from the divestment programme. Investors were enthused by the fact that these cash rich companies with great potential will pass on to efficient managements after disinvestment. The dismantling of the APM was another shot in the arm for oil PSUs.

But what became increasingly evident was that these stocks got rated as per the government's move on divestment. So whenever a CCD meeting was scheduled, the speculators had a field day, and continue to do so. But a retail investor does not have either the time to continuously monitor the 'body language' of a particular minister nor the big money to really speculate.

Vital stats…
  CMP
(Rs)
P/E
FY03E (x)
Network
BPCL 215 6.3 4,489 petrol pumps, 1,345 LPG dealers and 19 aviation
service stations
HPCL 291 14.3 4,729 petrol pumps, 1,822 LPG distributors and 10 aviation
fuel stations
GAIL 71 4.7 Owns in excess of 4,000 kms of pipeline and controls 95%
of the natural gas business in the country.

What he must therefore look at is the growing proactivity of the PSU managements ever since they have been left open to competition and face the threat of being divested. The service offerings which one gets at a PSU bank or through state owned telecom units BSNL and MTNL is better than what we have seen a few years ago. Of course, there is a lot of scope for improvement for these companies laden with years of 'babudom'.

Even among oil PSUs, one hears of IOC expanding in Mauritius and Sri Lanka, ONGC looking at buying stake in oil fields in the former Soviet Union and the Middle East. Recently a consortium led by ONGC's subsidiary, ONGC Videsh along with IOC and Oil India bagged the exploration rights of an offshore oilfield in Iran. Notice the HPCL campaign of 24 hr LPG cylinder delivery on prime time network. This statement would have been unheard of even a couple of years ago. If we notice the petrol pumps of both HPCL and BPCL, they seem to be getting an international look. The petrol pumps seem more orderly.

Per-capita consumption of oil: Growth potential
Calendar year 2000 India U.S China World
Consumption (m kgs) 97,600 897,400 226,900 3,503,600
Population (m) 1,033 285 1,273 6,137
Per-capita 94 3,149 178 571

What we are trying to say here is that, though divestment of these companies will be a big booster for their fortunes, one can purely look at them from the fundamental long-term perspective. When the divestment happens it can be considered as good luck. If it doesn't, you still have bought into a decent company, with good growth prospects in the 'black gold' industry. But the trick here is to look at the fundamentals carefully and decide.

For more, view our research reports on BPCL, HPCL,GAIL

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