Oil marketing shares down as hopes of price hike recede

Shares of public sector oil marketing companies were down around 1 percent on receding expectations of a diesel price increase.

Hindustan Petroleum Corporation was down 1.3 percent at Rs 341, Bharat Petroleum Corporation 1.2 percent at Rs 368 and Indian Oil Corporation 0.7 percent at Rs 268.35.

The companies incur huge losses as they sell diesel, liquid petroleum gas and kerosene at subsidised rates.

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“Given uncertainty related to fuel price deregulation, we believe that Indian Oil is best placed to tide over the under-recovery that OMCs incur on sale of fuels below international price,” HSBC said in a research note.

“Additionally, we believe Indian Oil’s petrochemical business is gradually turning around and can potentially contribute about 10-12 percent to the company’s EBIDTA in FY14,” it said.

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A Firstpost article on Tuesday said these companies declare profits on the basis of promises of debtors rather than the actual receipt of cash in the bank account.

In May this year, they were about to declare massive annual losses when, at the last minute, the finance ministry announced that Rs 38,500 crore in subsidies would be paid to them, the article said.

The government is yet to release to oil marketing firms Rs 17,000 crore compensation, announced earlier. The money is likely to come to the companies in three tranches by the next month, it said.