Why govt should revisit move to limit marketing margins of OMCs


Why govt should revisit move to limit marketing margins of OMCs

Shares of state-run oil marketing companies (OMCs)—Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL)—had declined by 25-35% in just two trading sessions in early October after the government asked them to sacrifice a portion of their marketing margins. Valuations of OMC stocks continue to remain depressed even after a sharp drop in crude oil prices.

Increased earnings unpredictability had forced investors to start looking at price-to-book valuation multiples compared to price-to-earnings multiples, and visibility remains poor. In this backdrop, an announcement stating that the absorption of marketing margins is revoked would help in improving sentiment and accordingly, valuations.

Sure, Indian Oil, BPCL and HPCL share prices have recuperated some of the losses seen in early October, thanks to the fall in crude oil prices. The stocks are now down 10-15%. Read More

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