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Feb 21, 2013, 09.07 AM IST | Source: Moneycontrol.com

Fuel price hike: How much will HPCL, BPCL, IOC gain

Oil companies may cut losses by around Rs 10,000 crore by year-end on regular diesel price hikes, say analysts. Bharat Petroleum, Hindustan Petroleum and Indian Oil Corp are still losing around Rs 9.50/litre on diesel sale, despite raising price for the second time in a month, after the government allowed them to do so.

Moneycontrol Bureau

Oil marketing companies (OMCs) may cut losses by around Rs 10,000 crore by year-end on regular diesel price hikes, say analysts.

Bharat Petroleum , Hindustan Petroleum and Indian Oil Corp are still losing around Rs 9.50/litre on diesel sale, despite raising price for the second time in a month, after the government allowed them to do so.

Though companies are selling petrol at market rates and even under-recoveries on diesel will almost become nil in two years, they are still likely to incur 1.63 lakh crore loss in FY13 due to sale of other products (kerosene and liquefied natural gas cylinders) at discounted rates.

Of the total under-recoveries, IOC alone will cross Rs 86,000 crore, the company has stated on its website. However, there could be marginal reduction in under-recoveries in this quarter due to price hike undertaken by companies.

In a recent interview to CNBC-TV18, BPCL's chairman and managing director RK Singh said, price hike in a phased manner would curtail annual losses by around Rs 2,300 crore.

OMCs get cash compensation and discounts from the government and upstream companies for selling fuel at subsidised rates, but quantum and time of making payment is not fixed.

Surprisingly, in Q3 oil companies managed to post profits on timely cash compensation from the government and concessions from upstream companies. However, according to government data, companies have incurred 1.24 lakh crore loss on sale of kerosene, domestic LPG and diesel in April-Dec period.

Brokerages are right now taking a cautious stance on OMC stocks after factoring issues like high cost of borrowing on collective debt of Rs 1.7 lakh crore and quantum of subsidy payments.

Axis Securities states, it may not be possible for companies to hike diesel price regularly due to upcoming elections. The brokerage will revise ratings post Q4 when it gets a clear picture on various issues, it said.

Morgan Stanley also believes, uncertainly about quantum and timing of government subsidy cause quarterly losses but on an annual basis, the government traditionally compensates thereby enabling them to report profits. This year too, the trend will continue, states the firm.

However, oil stocks jumped around ten percent post the government announcement of de-regulating diesel last month. Since then stocks have pared little gains. "Oil stocks are likely to give attractive returns in long term as the government has a strategy in place to bail out companies," said portfolio manager PN Vijay.

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HPCL stock price

On July 28, 2014, Hindustan Petroleum Corporation closed at Rs 383.05, down Rs 1.3, or 0.34 percent. The 52-week high of the share was Rs 462.70 and the 52-week low was Rs 158.45.


The company's trailing 12-month (TTM) EPS was at Rs 51.20 per share as per the quarter ended March 2014. The stock's price-to-earnings (P/E) ratio was 7.48. The latest book value of the company is Rs 456.54 per share. At current value, the price-to-book value of the company is 0.84.

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