NASA – Golden Days for Oil Refiners – updated 6.Jan.2009
Ref No: 
Ref No: 0901-004-NASA of 2009/Jan/06
News
This event has extra ordinary implications and is very positive on State Owned and Privately owned refineries and also the Oil and Gas producers.
Who will benefit? State owned refineries like my favorite BPCL, HPCL, IOC, MRPL, Bongaigaon Refineries, ONGC, Reliance Industries Ltd. Reliance Petroleum Ltd. (RPL), Essar Oil Ltd. (EOL), GAIL, GSPL, Petronet, Indraprashtha Gas Ltd.
The era of low share prices of all SOE (State Owned Enterprises) will be gone forever. Reliance that has closed down most of his Petrol Pump will begin to open them. Its gas find in Krishna-Godavari will be coming to production at very right time. May be RIL has partly influenced this decision.
The profitability of SOE refiners will rise tremendously. May be their profit may rise anywhere from 40% to 100% or even more. Their EPS too will rise very smartly. Their cash flow will increase, and their cash dividend may rise very smartly, because most of it will go Government of India.
My dream of SOE refiners to multiply 5 to 10 times in less than 2 years is now a distinct possibility. Further, the SOE refiners have very small quantity of shares.
The Metal industries, Fertilizers, and Power plants will suffer because of higher uncontrolled prices of their inputs. This is negative for REL, NTPC, RNRL, CESC, and host of power plants who use oil as major inputs. Their working capital requirements will rise by at least 30% due to higher fuel price and carried inventory.
Cairn energy which will become major producer of oil from June 2009 will begin to rise smartly. After ONGC, they will become the second largest oil producer.
The Cement plants too may suffer – the cost of transportation will rise. Train fare may rise; shipping companies too may suffer too. There will be weak protest from public utility vehicles like Auto rickshaw whose recent pleasure will be short lived.
In politics, the Communists will lose out and may shout at the government. This is very significant event for decades. GOI subsidy will come down to almost zero. The refineries will start selling those bonds to raise cash.
If they really account for as profit, the EPS of almost all SOE refiners will rise 150% to 200%. The stocks which are now trading at 5 to 6 times P/E will be trading at prospective 2009 and 2010 multiple of 2.5 to normal 8 to 10 times.
There will be re-rating of SOE Refiners bonds. They may come to upper Investment grade.
Strategy
- BUY Refiners’ stocks especially SOE owned like HPCL, BPCL and IOC, MRPL
- BUY Gas stocks like GAIL, GSPL and Petronet
- Buy Private refiners’ stocks like RPL, Essar Oil
- Sell, reduce, Avoid and swap from Power and infrastructure stocks like REL, NTPC, RNRL, CESC and other power stocks. Also Tata Power
- SELL any stock which has value of Rs 300 or more and swap them into above refiners. It will be a good time to sell counters like big banks, L&T, which are trading at 15 to 17 times P/E into low P/E geared SOE refiners.
- Book the profit in Airline sectors. They will lose out the concessionary fuel supply
- Iron Ore producers will suffer most due to their use of cheaper oil so far. They will be forced to dance to the tune of refiners.
- Take 50% position now and take other 50% when the news becomes a reality.
- These stocks will make the Investors real wealthy. There is no better time than this one. Those who have doubt and still read the academic losses of SOE Refiners must change their attitudes; otherwise they will miss the biggest rally.
- MRPL will jump very smartly. The refiners’ stocks will begin to outperform from 2Q2009.
Actions
Since the market is good, take the profit on those counters which are susceptible to fall later.
Start selling them. Take the double advantage of selling them in rally and switch them into Refiners and oil/gas producers at lower prices. Believe me if Government of India just follows up with the de-regulation of oil prices, the SOE Refiners will give over 500% return in less than 3 years.
CAUTION: If the Ahluvalia’s statement does not become a reality, it will mean the reversion to old status quo. This is why I am telling you to buy 50% to 70% now and balance on the news becoming fact.
Written by Anil Selarka (Kalidas) Edit
Hong Kong, January 5th, 2009 at 12:30 pm
Blog Site: http://www.anilselarka.com
Posted in New Entry
Link to this page
Dear Kalidas Sir,
Welcome back and hope you had a wonderful vacation in India. To your reply to ‘Gopala Raju’ you has suggested to invest in SOE like IOC, BPCL, HPCL, MRPL, Shiv Vani petro . Can you guide me what proportion % should I divide the capital and what lot size should I buy ,for a capital of 4 Lacs (which currently is in form of FD earning merely interest at 6.5%/annum in ICICI bank ).
Regards,
Atharva, Pune, India
Kalidas Says ….Monday, April 19, 2010
IOC:BPCL:HPCL:MRPL:Shiv Vani Petro
2:2:2:4:1 share ratio, that is for ever 2 shares of IOC, you buy 2 shares each of BPCL, HPCL, 4 shares of MRPL, 1 share of Shiv Vani petro
Atharva
15 Apr 10 at 7:41 PM
Kalidas,
Can you please suggest Oil Company stocks like IOC.NS @Rs283.00 or Other Stocks in 1 stock company.
I much appreciates your help.
Thanks
Raju Vema,
Seattle,USA
Kalidas Says ….Thursday, April 15, 2010
State Owned Enterprises (SOE) owned Refinery stocks are meant for long term investment. They are good to own now – in fact they are the cheapest stocks in the market. If you have money locked up in bak deposits, better take it out and place in SOE stocks like IOC, BPCL, HPCL, MRPL, Shiv Vani petro etc. They will rise by 300% to 500% in less than 5 years.
Rising rupee also benefits the refineries. Their input cost comes down enhancing their margins.
Thus all factors are in favor of these refineries. Do not try to play them short term – you may lose. Longer you own, better you earn in these stocks.
Gopala Raju
15 Apr 10 at 5:57 AM
Dear sir,
I had planned to put around 5Lack in HP and reserved this lot for quite long. I have bought around 500 stocks @ 1.2 lacks. I have remaining 3.8lack in Cash for this. Can i put my remaining lot now? With Rs appreciating and oil going above 75 is remote, HP / BP are great bets to own now. I doubt we will see HP below 300 and BP below 400 any time near future.
Pl dont’ answer this if it is ok to buy now .
I remember you had answered me on Money control long time back to buy this gem even at 300. So I am not worried to buy now . Only Sad that I could have put full amount when it was around 200.
Shiva
Bangalore India
Kalidas Says …. Saturday, May 30, 2009
Never ever think in the stock market that it may not happen and that the stock may not retrace to that level. Anything is possible in the stock market.
Buy RNRL and RCOM and also, Hindalco. Also follow ADSL or Allied Digital Services Ltd. Even Satyam looks good to me. It has consolidated for too long at higher level. It will break out of the trading range.
shiva
21 May 09 at 8:19 PM
http://business.rediff.com/report/2009/may/20/petrol-price-may-be-hiked-by-rs-2.htm
Is it right time to take position in HPCL, BPCL in this uncertain market ?
Bhavesh , Mumbai
Kalidas Says …. Saturday, May 30, 2009
When my target for these stock in next 3 years almost 5 times the current expanded value, I will not worry about movements here and there. Yes, I will take trading profit if the stocks have run too fast, but never get out of it altogether.
These stocks are good even for retirement days.
Bhavesh
20 May 09 at 6:12 AM
Dear Sir,
Can I buy more Essar shipping and Essar oil, GE Shipping and ABG Shipyard
Sorry for disturb you in your busy time
Regards,
Rajmohan babu
Pointe-Noire, Congo
Kalidas Says …. Wednesday, March 04, 2009
Essar Shipping and Essar Oil are better than ABG for the time being. Essar shipping in transportation, and its revenues have trebled, not the profits. The commissioning of refinery will give Essar shipping more in house business.
Essar oil is also good at this price.
GE shipping is best of all companies. However, it does not have as much in house business as Essar Shipping has. Still, GE shipping is good to own in market melt down (sudden loss of market due to some major disappointments in US)
ABG may be avoided for the time being.
Rajmohanbabu
27 Feb 09 at 5:50 AM
Made error in earlier post.
Hello Kalidasji
Would you please update NASA regarding OIL & PSU SOC (refineries). There has been lot happened with pricing in India since your last publication. I have read your comments regarding different stocks in oil/gas segments. Very facinating……..might as well add… Profitable!
Keep up the good work. World need more people like you.
Cheers
Manoj
Auckland, NZ
Manoj
26 Feb 09 at 6:26 pm
Kalidas Says …. Friday, February 27, 2009
I am racing against time for my book project. it gives me very little time therefore. I also have other personal affairs to take care of and visit to India for about 2 weeks. After my return, I will try to update everything you have said. Right now, they are still good buy. My opinion on oil and gas sector, IFCI, LICHF, all other stocks mentioned before remain unchanged with exception of some shipping companies who reported unexpected forex losses. 5 star hotels, gas sectors like GAIL, Petronet, Indraprashtha Gas, state owned oil refiners like BPCL, MRPL, IOC and HPCL, finance sectors like IFCI, LICHF, metals like Hindalco, Auto sector like Tata Motors now, Ashok Leyland, Maruti, Airlines like Jet Airways, entertainment stocks ( I will have to be selective) and food sectors will be the best to go for.
Ignore Infra structures. the glory days are over for the time being. They may rise later but not to the extent. Earlier, the push was due to the land bank they acquired at pittance cost and valued astronomically. Indian GDP will come down to 1.5% from 7% they are talking about.
Since many Indians are coming back from overseas, lot of funds will move back into India, and demand for housing for self consumption will be sustained.
India is still the best place for destination. US under Obama will collapse. This man has gone crazy and taking all steps which will accelerate the destructions of United States of America. There could be political assasinations also sooner than later.
Manoj
26 Feb 09 at 6:28 PM
Kalidasji,
Further to y post on 10th Jan…
An article showing the government’s intention to cut fuel prices…
http://economictimes.indiatimes.com/Govt_may_cut_petrol_price_by_Rs_4_amp_diesel_by_Re_one_a_litre/articleshow/4040635.cms
I feel they are just trying to do this to gain common man’s support in the wake of elections and to reduce inflation(since diesel constitutes significantly to the inflation index).
Regards,
Atul
Singapore
Atul Upare
28 Jan 09 at 7:55 AM
Dear Sir,
Current EPS of Essar Oil is less than Rs 1 per share.
Here are the figures from livemint:
Sep08 Jun08 Mar08 Dec07
EPS (in Rs.) 0.22 0.25 -0.07 -0.12
At current CMP of Rs 75 the PE for year 2009 will be more than Rs 75 if we assume the EPS as Rs 1.
1. EPS of Rs 35 is very difficult to achieve. It is entirely dependent on Oil Price rise which is very difficult to forecast currently.
2. EOL is both into refinery and Oil Prodn. Can it get best of both worlds? I dont know how much of their oil refining is met by their oil production. There can be following cases:
A) Their Oil refining capacity is much more than their oil production capacity.
In this case they will benefit if oil prices go down and prices are adminstered
B) Their Oil Refining Capacity is much less than oil production.
In this case they will benefit if oil prices go up and prices are allowed to vary.
C) Third case can be there is not much of a difference between refining and producing capacity.
Please advise if my undestanding is incorrect.
Regards,
YSB
(Ref: 0901-108) Sunday, January 18, 2009
Kalidas Replies..Reminder: To get reply, please append City and Country name to your signature invariably.
EOL is in production now. You are counting EPS based on historical numbers when it did not have revenue. its revenue will be Rs 42000 to 45000 crores as against few hundred crores.
EOL oil production is small. Their production capacity is far less than refining capacity. It is a 12mtpa refinery.
YSB
17 Jan 09 at 6:21 AM
Dear Sir,
Just went through the above link. Want to ask you few points:
1) The sales of EOL increased from 176.60 to 13,717.00 crores i.e. 7693% increase in sales in previous 5 quarters.
2) The Net Profit seems to increase from a loss of 14.09 to a profit of only 26.00 Crores … a 40 crores increase in 5 quarter with the latest EPS 0.22 Rs/Share.
Just dont understand how come a company can raise sales to 76 times but dont manage to raise the net profits substantially. Don’t you think we have creative accounting here?
Regards,
Vivek, Gurgaon, India
(Ref: 0901-107) Sunday, January 18, 2009
Kalidas Replies..
Prveious 2 quarters. The refineries have come to production. Before that date, there was only a trial production.
When the company was not in operation, all depreciation and interest expese used to be debited to pre-paid expense to concerned Capital Asset. for eg. If Machineries are value at Rs 4000 crores, the depreciation before it comes to operation is just 10% or say Rs 400 crores, Interest expense on that Rs 4000 crores may be around Rs 500 crores. so in all, during pre-production stage, the expense of Rs 950 crores would be debited to Asset account (not P/L).
Once that asset comes to production, depreciation rate may be much larger due to 3 shift working. Same depreciation of say Rs 400 croes per year or Rs 100 per month may rise to Rs 600 crores (due to initial depreciation and extra shift related depreciation. Similarly, the Interest cost of Rs 500 crores, which used to be debited to Asset account, will be debited to P/L account. therefore, these two charges of Rs 1100 crores will be debited to P/L account rather than Asset account. this is why the profit appear smaller.
In another 6 months, additional revenue will be 23000 crores, The yearly revenue will be between Rs 42000 to 45000 crores.
Same thing may happen to RPL. It is not in production so all expenses are debited to Asset account instead of P.L account. Once it comes to production, all these expenses will be debited to Profit and Loss account.
There is nothing hanky panky in this. It is just accounting methods.
Vivek
17 Jan 09 at 4:33 AM
Dear Kalidasji,
(a)How shall be Essar Oil in reference to Free pricing formula due to be announced on 15/1( likely to )?
(b)If shoot up a lot,How much ?
(c)Any downward risk after such announcement?
[ Present CMP is Rs.75.05 ]
-Ramesh , Mumbai , India.
(Ref: 0901-095) Wednesday, January 14, 2009
Kalidas Replies..
It would have been better if you had mentioned the source of information regarding possible decision on 15/1. Now,
(a) Obviously, EOL will be the biggest beneficiary. EOL has already re-opened 1000 Petrol Pump Stations (PPS) whereas RIL confirmed only yesterday that it would not re-open over 1400 PPS until pricing formula is agreeable. In short, EOL is already in the market to capitalize any upward move in oil prices.
EOL is already in production. Its Revenue has increased multifold to Rs 21000 crore plus in first 6 months, so for 12 months basis, it may hit Rs 45000 crores for YE 31-03-2009. If oil prices are raised even by 5%, it would gain extra 1200 crores in next 6 months which will straightaway add to its profits. (at least Rs 1000 crores at least). It has over 120 crores shares outstanding. so it can possibly earn extra Rs 8 per share. In fact for every 1% rise in retail increase, EOL can benefit by Rs 240 crores or Rs 2 per share. Of course, not everything will be Net Profit because interest and depreciation expenses will rise which were earlier capitalized. Check the following link for Qty Result:
http://marketinfo.livemint.com/Research.asp?pageName=FundaReports&ReportType=QT&CompanyCode=12140024&CompanyName=Essar+Oil+Ltd%2E&Ticker=Essar+Oils&MajorSector=In next 12 months, EOL should earn over Rs 2000 crores or Rs 18 per share. It should be noted that EOL is deliberately understating its profits to save on taxes. How long will they continue to do that, I do not know. At full production and liberal price control, EOL may achieve the EPS of Rs 30/shr as originally anticipated by me in 2008, PROVIDED there are no creative accounting practices adopted by Ruia family (similar to Satyam)
In my opinion, EOL is likely to hit the price of Rs 120 to 160 in next 12 months, regardless of bear market. Present prices are bargain. It will suffer only if intended policy shift does not take place.
(b) 120 minimum to Rs 160 maximum in 12 months
(c) There is always downside risk for any stock at any time. Take off 20% at the most as downside risk. Rs 60 will be the best bargain price to enter, although current price is still within my buying range.
Ramesh
14 Jan 09 at 3:02 AM
Murli deora has made an announcement to reduce fuel prices in next 10-15 days..
How do you see this news playing out for Oil companies?
I am planning to buy these stocks in this week. Let me know your opinion
Regards,
Atul
Singapore
(Ref: 0901-084) Sunday, January 11, 2009
Kalidas Replies..
He would be stupid if he is going to do that. The oil prices were reduced only recently. This is not nationally produced item one goes on reducing prices in volatile environment. Only 6 months ago, they were at $ 147
In my opinion, the oil prices have already seen their low. They will begin to rise to $ 80 at least in next 3 months. If Mr. Murli Deora wants to play pre-election gimmick to reduce the prices when he should not, he will have to eat the bitter bullets later in complete U turn that may cost the ruling party the election, which is just 4 months away.
Atul Upare
10 Jan 09 at 10:19 PM
All informations put in here is not correct. So. all the expectations may not be achieved. Take the case of NTPC and CESC. NTPC and CESC both are coal based power producer. They hardly use oil as input specially CESC. There are also other probabilities too. After Satyam’s scam revelation, other organisations may follow the suit. As a result the whole stock market will be jeopardised and the investing community will just shy away from the market. So, as a result all the value will be devalued and enough to start the nightmare of the investors and may start a long live bearish market like Japan which is falling from 40000.
(Ref: 0901-050) Thursday, January 08, 2009
Yes, you are right in one respect. Not everyone use oil. Most of the new power plants are based on Gas rather than coal. Further, when the oil rises, the coal also rises, may be with some laggard effect.
Wait for my article on Satyam that may appear by tomorrow morning. Satyam is not everything. There may be more tactics than real event in Satyam affair. Bank balances and cash balances are difficult to manipulate for so long. The Auditors were Price and Waterhouse, world’s leading company. The auditors always without any exception verify bank balances and cash balances during their Audit, and there is continuous audit for such large company. It seems to me that Raju is trying to save the cash of Satyam from lawsuit from their customers concerning data theft. it is difficult for me to buy that story. More later
Shah Alam
7 Jan 09 at 7:54 AM
Kalidasji,
The investors in State Owned and Privately owned refineries and also the Oil and Gas producers may rejoice this decision by the GOVT. to buy the stocks at lower level and making a huge profit later on, in case de-regularization happens. However, would not this de-regularization of the fuel price will once again fuel the inflation on the upper level and hence, the higher interest rates also and we will be in square 1 position again battling with the high inflation and high prices and high interest rates once again? Is it not the higher fuel cost always gives bad effect on economy? Anyway, the Govt is not in favour of making the INR currency strong to make the fuel cost lower.
I would appreciate your views on this.
Because of Satyam episode, during the market crash anything can be bought or wait for 16 th Jan?
Rang-Jama, Bangalore, India.
Rang-Jama, Bangalore, India
7 Jan 09 at 2:51 AM
Dear Kalidasa,
In a country where politics rule everyday life, it is still difficult to believe that the government will ever deregulate the fuel prices. This idea was put forward by the then NarshimaRao government,when crude was trading below $20. Now with the election approaching I doubt whether any government can take such a bold step & stick to it.
Regards
Kalidas Says …. Repost the message in proper forum
Mohan Thomas
6 Jan 09 at 11:47 PM
sir,
if i have a investment capital of rs.100, how much should i spend to buy in this sector?
rajarshi
kolkata,india.
(Ref: 0901-042) Wednesday, January 07, 2009
Kalidas Replies..
40%
rajarshi
6 Jan 09 at 8:48 AM
Dear Kalidas Sir,
In view of above news, is it advisable to hold Cairn energy ? I am holding 105 @ Rs.160/- from IPO. I am planning to sell in the current rally. What is your view on this.
Thanks,
-Santosh, Bangalore
(Ref: 0901-041) Wednesday, January 07, 2009
Kalidas Replies..
Best days for Cairn energy are going to come from June 2009 onwards. According to L&T, they have completed their pipe line project. They are likely to produce 200,000 bpd or US$ 9.6 Millions per day at current prices of $48/brl. that is, Rs 46 crore per day or Rs 16,800 crores per year. If the Gross Profit is 80% before DIP (Depreciation + Interest+ Taxes), the PBIDT will be Rs13440 crores. Providing for DIP will be 2500 +1000 + 1500 = Rs5000 cr. Leaving PAT at Rs 8400 crores. Considering 190 cr shares outstanding (providing there is no more dilution), the EPS could be Rs 45 per share. Based on 10 times P/E (as applicable to ONGC), the stock could go to Rs 450 theoratically. (I am not counting income from bye-products)
Exploration days are over for this stock. It will be in production, more like ONGC. It will be re-rated. This is my rough estimate. I do not have verifiable figures (available internally) which makes my estimate as Guestimate. In any case, the present sale would be a mistake. However, if the stock makes sudden run, then you may sell it to book profit with a view to buying back in correction caused by world market event. If there is major correction in price due to postponement of production or other market events, that will be good entry point for this stock.
Santosh
6 Jan 09 at 8:05 AM
Kalidasji,
Even Essar Shipping comes under sell call because of development?
Rang-jama, Bangalore, India
(Ref: 0901-036) Tuesday, January 06, 2009
Kalidas Says …. Not necessarily. Shipping companies have additional advantage to buy the fuels at the destination port in gulf where the cost is much cheaper without any taxes. further, Essar Shipping has distinct advantage of captive consumption – they can transport the crude and export the refined oil (Petrol, Kerosene, Jet Aviation fuel) on behalf of their parents. In short, their vessels will have extremely high load factors. It is still one of the cheapest stock around. Only their Management (by Ruia) sucks. This is why their stock do not command higher value compared to their competitors/peers. Stay with it. This is the stock when moves, never get into your hand. If you have patience, it will certainly make big money. My only qualification is that their losses in Forex should not have been there at all – why did they lose. We will know from Dec08 quarter.
Rang-Jama, Bangalore, India
5 Jan 09 at 11:44 PM