One has to be extra cautious these days picking stocks, given the way shares have rallied in the last few months. However, there are still come excellent picks that one could buy considering the medium to long term prospects. Here are a few of these.
Hindustan Petroleum Corporation is a Fortune 500 company ranked 367 by Fortune magazine in the world. The company is among the top refinery companies in India with fuels and refiner facilities in Mumbai, Vizag etc. Hindustan Petroleum had an exceptional run in 2016-17, wherein the company saw the highest ever market sales and highest ever thruput. The company remains one of India's largest Lube marketer. For FY 2016-17, HPCL saw its net profits jumping from Rs 3,729 crores in 2015-16 to Rs 6,209 crores in FY 2016-17. The financial performance of the company has been excellent on all counts and there are also various other reasons to buy the stock of HPCL.
Why to buy the stock of HPCL?
The total borrowings of the company has come down from Rs 33,789 crores as on March 2013 to Rs 21,250 crores as on March 31, 2017. Consider the benefits for shareholders. The company declared a bonus issue of 1:2 in May 2017; a final dividend in May 2017; 2nd interim dividend in March 2017; A first interim dividend in Feb 2017 and a bonus in Sept 2016. It does not get better than this for shareholders. The dividend yield on the stock itself is around a decent six per cent. In fact, the stock has recently fallen from levels of Rs 583 very sharply. The fall in the prices of crude oil and the daily change of crude oil prices should benefit the company even further.
Fundamentals of HPCL
HPCL reported an EPS of Rs 61 for 2016-17, which was no doubt a great year for the company. This means the stock is available at a price to earnings ratio of just about 8 times one year forward earnings. The company has ambitious plans going forward. HPCL Rajasthan Refinery is in initial stages, the Mumbai refinery is undergoing expansion, there is a West Coast Refinery project and a number of LPG plants. In fact, the expected capacity expansion would cost the company a staggering Rs 61,000 crores between 2017 and 2021. We believe that with all these initiatives the company remains an excellent long term story considering dividends, bonus and huge reduction in debt.
This is another oil refinery stock that we are suggesting that investors should buy. This company too like HPCL is not very expensive and had a superlative performance in 2016-17. Chennai Petroleum is a subsidiary of Indian Oil Corporation. The company reported an EPS of Rs 70.57 for 2016-17 and is currently available at a p/e of just about 5 times (current market price of Rs 350). Like HPCL the stock is excellent on dividend yields of around 6-7 per cent. However, we wish to state that should crude oil prices rise sharply companies like Chennai Petroleum and HPCL could both be impacted badly. The stock is also available at a price to book of around 1.7 times.
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