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manishdave
Senior Member
Joined: 05/Aug/2006
Location: India
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Posts: 1371
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   Topic: Is worst over for BPCL/HPCL?
Posted: 17/Aug/2006 at 10:19pm |
Now let me make it very clear. These are not stocks that you buy and hold for 10 years or even 5 years. But looks like good timing for T/O play.
We discussed these companies very recently but I cant find better timing to buy them. Indices went from 3000 to 11000 in 3-4 years and these stocks went nowhere. They have valuable assets. Two reason to buy them.
1. PM indicated that Govt. can not provide infinite subsidy.
2. housing mkt is already breaking down in US. And that is huge activity. Although growth in demand will continy from China/India - Slowdown in US should have some effect on oil prices even if temporary. After all US consumes 25% of energy. As Jim says every bull market has corrections.
If oil gets corrected somewhat these companies can move fast.
if not there is not much downside.
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basant
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Joined: 01/Jan/2006
Location: India
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Posts: 18403
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Posted: 17/Aug/2006 at 10:44pm |
I agree with your opinion Just did a small analysis to check the downside and found it well protected. There are two things that catch a stock's downside
1) Book Value
2) Dividend Yield
While the dividend could vanish the sheer replacement cost of these companies is huge. Also with crazy things going in the market I am not sure if any analyst would start valuing these companies on the basis of the land that they hold.
The following snapshot of the two companies will make it clear.
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Particulars |
HPCL |
BPCL |
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C.M.P |
Rs 254.30 |
Rs 347.20 |
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Market Capitalization |
Rs 8629 crores |
Rs 10,417 crores |
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Book Value |
Rs 249.04 |
Rs 212.95 |
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Dividend per share |
Rs 15.00 |
Rs 12.50 |
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Dividend yield |
5.91% |
3.60% |
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Price to book |
1.02 times |
1.63 |
Amidst all the talk about these companies going bankrupt I would think that political compulsions would not allow the Govt. to let these companies go bankrupt. Both HPCL and BPCL employ thousands of workers and with the red brigade behind the PM I am not sure if he could afford to let that happen. So worst come worst HPCL and BPCL will be compensated in what ever way possible either through oil bonds or anything else so as to keep the show running.
At this stage HPCL and BPCL are available at such cheap valuations that investors could consider buying them on leverage. The protected downside means that you would lose only the interest component and you could use your capital to buy other things which you think are attractive so even if these stocks do not move there would not be any real opportunity loss.
Edited by basant - 13/Sep/2006 at 1:46pm
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sajanvm
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Joined: 18/Jul/2006
Location: India
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Posts: 91
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Posted: 19/Aug/2006 at 5:41pm |
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Kochi Refineries will be merged into BPCL in a ratio of 4:9. At the current market price of 375 for BPCL, the equivalent price for Kochi shd be 167. Instead it quotes at a discount of 6-7% (Rs 155). Thus, if you believe BPCL is a deep value play, Kochi is an even safer way to buy BPCL.
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Sajan
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basant
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Posted: 19/Aug/2006 at 5:44pm |
A very piquant observation.
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ashwin.adsouza
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Joined: 06/Sep/2006
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Posted: 13/Sep/2006 at 1:22pm |
Basantji, I think that you might have mistakenly interchanged the names of HPCL and BPCL in your message snapshot above.
How much land does these two PSUs own, that analyst might think to value them on their land basis? Do you mean by the land that the petrol pumps are located on?
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basant
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Posted: 13/Sep/2006 at 1:44pm |
Oh yes. I have. Will have it changed.Looks like a serious typo. Funny no one pointed it out earlier.
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reetesh
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Posted: 13/Sep/2006 at 2:50pm |
One can look at my favourite IOC as well, one advantage with IOC is it is almost same business mix of retail and refinery, altought in short term IOC is at disvantage because of lower refinery maring but in long run this is better than HP/BP.
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When going gets tough, that’s when tough (people) gets going.
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tigershark
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Joined: 13/Oct/2006
Location: India
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Posted: 27/Oct/2006 at 10:26pm |
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on a more broader note big oil may have already peaked at 75
although in the short run oil might rise above 60 oil majors today are
a worried lot chinas demand has now moderated and so has indias at the
same time new iol discovered will be coming to the mkt if there are no
geo politcal tensions and no large scale disruptions oil could see 40
in the long term if this happens then at least the subsidy burden
should be reduced drastically improving their balance sheet.on a
lighter note the word subsidy should be termed unparlimentary and any
poltician using should be disqualified it will do our country some
good.tigershark.pl read newsweek dated oct82006-is the oil boom over
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understanding both the power of compound return and the difficulty getting it is the heart and soul of understanding a lot of things
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