Fuel Price Reset: How Should We Value Oil Marketing Companies Now?

Fuel Price Reset: How Should We Value Oil Marketing Companies Now?

If Life Insurance Corporation of India (LIC) is willing to dish out more than ₹20,000 crore to bail out IDBI Bank Ltd, what is a few thousand crore rupees shared by three large oil marketing companies (OMCs) to help the government lower fuel prices? Apparently, it’s worth a lot. With unlisted LIC, there is no way of knowing what the Street thinks of the government’s penchant for looking to the insurance giant for help. Not so with Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd, all of which are listed.

The market capitalization of the three OMCs has fallen by ₹75,781 crore in the past two trading sessions. That was after the government looked to them to sacrifice part of their marketing margins in an effort to lower fuel prices. According to analysts, there may be more pain to follow, since there is no way to know how much the government expects the companies to contribute towards fuel price management.

The cut in marketing margins announced by the three OMCs last week is expected to hit their profits by about ₹5,000 crore in the second half of fiscal year 2019, according to a report by Kotak Institutional Equities. That is a drop of about 14% compared to the brokerage firm’s previous earnings estimate. Read more

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