Oil marketing companies may be forced to bear part of subsidies, says CLSA

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April 12, 2018 3:55 PM

The stocks of major oil marketing companies are ignoring subsidy risks and therefore they should be ready for a cut in earnings and valuation derating, CLSA said.

opec political crisisThe global brokerage also said that the shares of major oil marketing companies namely Indian Oil Corporation (IOC), Bharat Petroleum (BP) and Oil India Limited (OIL) are ignoring subsidy risks. (Reuters file)

The stocks of major oil marketing companies are ignoring subsidy risks and therefore they should be ready for a cut in earnings and valuation derating, CLSA said. In such a scenario, the investors must be ready for possible earnings cut and valuation derating, CLSA told ET Now. The global brokerage also said that the shares of major oil marketing companies namely Indian Oil Corporation (IOC), Bharat Petroleum (BP) and Oil India Limited (OIL) are ignoring subsidy risks including under-budgeted oil subsidy along with fiscal pressures and should be ready be ready for a downside in their valuations in the near future.

The global brokerage estimated that OIL shares may fall by 34-38 percent at brent price of $70. CLSA  expects 1-13 percent downside for ONGC if crude oil price surges to $70. The global brokerage maintains a buy call on ONGC with a target of 225 per share. The shares of ONGC were trading at Rs 181.75 up 0.22 percent at the time of reporting.

Meanwhile, Saudi Aramco, the world’s largest oil producer, on Wednesday entered into an agreement with the Indian oil companies to become part of $44 billion investment in West Coast refinery and petrochemical project called Ratnagiri Refinery and Petrochemicals. The investment by the company is one of the largest made by any foreign oil producer in India. The agreement is being facilitated by three state-run oil marketing companies — Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation. The investment made by the world’s largest producer of oil may help oil companies in increasing their margins

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