New Delhi, Nov 25: Despite rising international petroleum prices, refinery stocks are having a dream run on the bourses. Refinery stocks like Hindustan Petroleum, Bharat Petroleum, Madras Refinery and Cochin Refinery have been hitting the upper band of circuit-filter for the last two consecutive trading sessions. Contrary to the general perception that with the rising international prices of petroleum products, bottomlines of refinery companies should also improve, it actually adversely effects their profit margins.With the refinery companies mainly importing crude oil and then refining and selling, higher the internatioanl prices, lower the margins. Currently, the international price of crude oil is ruling at US $ 24-25 per barrel. Then what's the explanation for the sustained rise in the stocks? According to marketmen, the refineries stocks have been pursued by punters mainly because of the attractive valuations and a likely disinvestment in the near future.
According to an analyst with a Mumbai-basedleading brokerage house, ``Factors like refinery companies priority on the government's divestment list, opening of the sector and low valuations make refinery stocks the obivious pick for bargain hunters.''
Another analyst feels: ``Although the margins in the refining business are low, the market should rerate these stocks on the basis of vast distribution network and the brand-equity enjoyed by companies like HPCL and BPCL.'' With the opening up of the sector and many foreign companies entering the market, good refinery companies deserve better ratings. Companies having a wider reach will have an advantage in the de-regulated environment. According to marketmen, many FIIs are showing keen interest in these stocks, mainly for the low valuations enjoyed by them than their peers abroad.
Madras Refineries in the last fifteen trading sessions has gained more than 55.42 per cent, to touch all-time high of Rs 65.90. On November 1, the stock was changing hands at Rs 39.45. Volumes are also high at the counter.
Despite the price rise, the stock currently enjoys a PE of mere 4 times.Bharat Petroleum is currently trading at Rs 381.33, and has gained more than 35 per cent in the last 15 trading sessions. The scrip is currently trading at a PE of 6.9 times.
The marketmen feel the stocks are going cheap as the economy is reviving. Despite the stocks hitting the upper band of the filter in the last two trading sessions, the volumes at the counter has been high at over a lakh. On both days, there were only buyers at the counter.
HPCL, which was trading at Rs 153 at the beginning of the month today has only buyers at the counter with the stock changing hands at Rs 229.75. The scrip is trading a PE of 7.6.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.