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
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