The government of India stepped in yesterday to tackle the issue of rallying fuel prices in India and announced cut in excise duty of petrol and diesel by Rs 1.50 per litre with immediate effect. It also noted that the state-run oil marketing companies in India will slash retail prices by additional Re 1 per litre of both petrol and diesel across the country. Though this announcement bought in some relief for the end users it shook the stocks of all the oil marketing companies during trade session.
Yesterday, after the Finance Minister Mr Arun Jaitley briefed the media to announce the central governments decision to curtail the retail price on fuel by the state-run oil marketing companies (OMCs) and with this the stocks of the Indian OMCs sank to hit a new low, with Indian Oil Stocks down by 18.24 percent, HPCL stocks tumbled by 22 percent and BPCL stocks declined by 19 percent.
Today also the scrips of Indian oil marketing companies continued to fall with Indian Oil Stocks down by 14.61 percent, BPCL stocks dipped by 19.52 percent and HPCL Stocks declined by 21.97 percent. Analyst predicts that the state-run HPCL is likely to be the worst hit amongst the oil marketers in India as it is the biggest contributor to overall operating income.
The investors usually use a particular parameter to value the state-owned oil marketing companies scrips and it is unique in nature. If the stocks rise, analysts use the PE multiple to evaluate them and if it sinks, analysts look out for their price to book (P-B) ratios.
A rupee dip in the marketing companies margins will lead to curtailing of approximately 17 percent - 22 percent of projected earnings for fiscal 2019. The move is likely to cost the oil marketers to lose close to Rs 7,000 crore or 18 percent of their net profit for the fiscal 2018 - 2019. The gross marketing margins of the oil companies will be down to a five-month low.
India adopted dynamic pricing technique to fix the prices of fuel starting from June 2017 and this helped the oil marketing companies to reduce the subsidy quantum on fuel to zero.