Shares of oil companies were trading in the red on Thursday. This comes after Emkay Global Financial Services said that the continuing price freeze, reportedly for around 85 days, was worrying.
“The price freeze for auto-fuel and LPG retail sale price amid soaring commodity prices and cracks has led to a rise in under-recoveries for oil marketing companies (OMCs) in the first quarter of FY23. We estimate adjusted underrecoveries of Rs 141 billion in auto-fuel and Rs 125 billion in LPG, based on accounting margins,” Emkay Global Financial Services said in a research note.
Also Read |
"The price freeze has created an overhang on OMCs and upstream stocks as funding clarity is yet to emerge,” the brokerage firm added.
Though looking at past instances and the magnitude of current losses, the brokerage firm expects some solution in the form of a resumption of price hikes and/or subsidies.
For oil marketing companies, earnings visibility is low currently, though valuations are at trough levels, the brokerage firm said.
A trough means a stage in the business cycle where prices are bottoming before a rise.
Hence, the brokerage firm has maintained its ‘buy’ rating on Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation as any triggers in the form of retail sale price hikes, cool-off in oil prices and subsidy support can lead to sizeable rerating.
With respect to upstream companies, despite concerns over outsized subsidy burden, still remain well placed, it believes.
“Our calculation shows even a 50 percent upstream subsidy burdens in the first quarter could still entail almost $70 per barrel net realisation for ONGC and Oil India,” said Emkay Global Financial Services.
First Published: Jun 30, 2022 3:48 PM IST
Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!
Shehnai by Ustad Bismillah Khan's kin, ode to Kashi's celebrities: PM Modi's roadshow to showcase Varanasi's grandeur
May 13, 2024 11:03 AM
Piyush Goyal speaks on '400 paar' target, Maharashtra power play and more | Full text
May 13, 2024 9:00 AM
Why low voter turnout continues to be a serious subject of discussion as Phase-4 voting begins today
May 13, 2024 8:32 AM
Only 12% of candidates in fray in phase 5 are women, says ADR
May 13, 2024 7:15 AM