Outlook
The Indian
hydrocarbon sector is nowundergoing a transformation from operating
under administered prices to a market drivenpricing mechanism. This
change has come about when the global refinery outlook is not
veryoptimistic. Given the economic slowdown, even demand growth in
India has slowed down.
It is likely that
the Indian hydrocarbonsector will witness a change in the next
three years. A spate of mergers and acquisitionscoupled with an
over supply, thanks to Reliance refinery, will ensure that things
will notremain the same.
The players who will
survive the processwill continue to be the "The big three", ie IOC,
BPC and HPC. They will reap thebenefits of their marketing
infrastructure and depreciated refining assets. Outlook forany new
greenfield refinery is bleak. Stand alone refineries like CRL and
MRL will beconsolidated into the marketing companies. Among the new
private sector refineries,Reliance Petroleum offers the best
exposure because of its size and aggressive growthoriented
management.
Valuations will
continue to remaindepressed due to threat of stock supply in the
form of government divestment. It willcontinue to remain so until
global outlook towards the entire sector changes. Currentvaluations
of IOCL, BPCL and HPCL do not reflect their long-term competitive
position.Investors should use government disinvestment programs to
buy into this sector.
