The government on March 14 increased the special excise duty on petrol and diesel by a Rs 2 per litre and road cess by Re 1 litre each.
Harshvardhan Dole of IIFL said, over the next two quarters, there is going to be an issue in terms of demand particularly diesel. Diesel growth has been more or less flattish on a year-on-year (YoY) basis and that is going to be key.
Discussing the impact of this move on the oil marketing companies (OMCs), he said they will try and pass on this increase. However, what it does is it makes the alternative fuels, like CNG, much cheaper. With the gas price cut in the offing from April 1, the attractiveness of CNG versus petrol will improve further. So there will definitely be a shift from petrol to CNG over the next 12-18 months which in a way will have an impact of volume growth on the OMCs,” he said.
“All the three OMC stocks, Hindustan Petroleum Corporation Ltd (HPCL), Bharat Petroleum Corporation Ltd (BPCL) and Indian Oil Corporation (IOC) are ridiculously cheap, completely bombed out and trading way below their respective book values. So, in every possible angle, they are cheap. We think fair value for BPCL is in the region of around Rs 500-550. HPCL on a normalised earnings deserves to trade around Rs 270-280 and IOC – considering the fact that it is one of the most defensive stocks in the sector – will lag HPCL and BPCL,” he added.
Speaking about Reliance Industries Ltd (RIL), Dole said, “One has to take a normalised call here and if you take a normalised scenario, one can definitely ascribe a value closer to about Rs 1,600-1,650 for the stock. That is mainly because the weakness in the commodity prices will get more or less offset by strength in Jio and Retail."
"So, we have a strong buy call on RIL with the caveat that next two quarters are going to be quite challenging for the commodity business and to that extent, the stock will be quite volatile, said Dole.”
RIL, the promoter of Reliance Jio, also controls Network18, the parent company of CNBCTV18.com.