Prefer Bharat Petroleum Corp among OMCs: Jal Irani

Jal Irani, Oil and Gas Research of Macquarie Cap told CNBC-TV18, "The oil marketing companies (OMC) Hindustan Petroleum Corporation (HPCL), Bharat Petroleum Corporation (BPCL) and Indian Oil Corporation (IOC) are actually entirely sentiment driven. They just counter-cyclical with subsidies, but in reality the subsidy burden does not affect them at all. At the end of the day the government has to give them a certain minimum profits otherwise they will have serious cash flow problems and can potentially could go bankrupt as well."

"Actually the way the subsidy is decided it is a goal seek profit number that they allowed and if subsidy burden goes up they do not bear a higher subsidy burden in any case. After the very steep fall in the stock prices of 30-40 percent they are on ridiculously low valuations. These companies are quoting on bankruptcy valuations so the market is saying that they will go bankrupt. Is that possible? They control 99 percent of the gas stations and petrol pumps in the country. If one does not have any oil distribution network in the country there will be economic chaos which the government cannot afford. So the worst case scenario which the market is pricing is not going to happen," he said. "What we would suggest nevertheless among the three OMCs, BPCL actually presents the best opportunity, because it also has got a USD 3 billion odd upstream value. Oil and Natural Gas Corporation (ONGC) has bought Anadarko's Mozambique stake, the same stake as BPCL has got for USD 2.6 billion. The entire market cap of BPCL is USD 2.8 billion." He further said, "Firstly, the market is telling us that BPCL's underlying refining and retailing business is actually for free. Besides, the upstream business of BPCL is actually a dollar denominated value business. So the currency depreciating and oil prices going up BPCL turns out to be a net beneficiary and the market at the moment is just looking the other way. So, I certainly think the OMCs as a whole present significant value, but most importantly BPCL presents even greater value than the other two." Also Read: In rupee terms, under-recoveries may increase: ONGC