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No Profits Insight for Oil Marketing Companies

February 4, 2010

The Kirit Parekh report suggests the government to deregulate gasoline and diesel prices, increase kerosene price by Rs6/lit and raise it every year, and increase LPG prices by Rs100/cylinder and revise upward periodically. These suggestions are largely in line with the recommendations of earlier committees. We believe the suggestions are likely too aggressive to be implemented in current form, given inflation concerns, implementation issues and political considerations.

Partial deregulation of fuel prices would not help oil marketing companies (OMCs), since they remain dependent on state-owned upstream companies and government grants.

OMCs have limited scope of earning high profits. Also the fate of any fuel pricing reform remains hinged to the path taken by international oil prices. Investor should AVOID Oil Marketing Companies – HPCL BPCL and IOC.

Institutional Investor, Goldman Sachs has gone ahead and recommend a SELL on the above companies with a downside of 20% from Current Market Price.

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