Stocks of Indian oil marketing companies (OMCs)— Bharat Petroleum Corp. Ltd (BPCL), Hindustan Petroleum Corp. Ltd (HPCL) and Indian Oil Corp. Ltd (IOCL)—have underperformed the benchmark Sensex in the current quarter. During this period, these companies announced their financial results for the quarter and half year-ended September, which were disappointing. All OMCs have posted losses at the net level for the first half of the current fiscal year thanks to delays in subsidy compensation from the government and forex loss. The three firms have posted a combined loss of 23,440 crore with IOCL accounting for almost half of the total.

The other concern is the higher debt on the balance sheets of all the OMCs resulting in higher interest expenses and pressure on profitability. According to the latest balance sheets, in the last six months, the combined debt of OMCs has increased by 33%. And to top it all, benchmark Singapore gross refining margins have been weak in this quarter, which is likely to adversely affect the OMCs’ financial performance. Refining margin is the difference between the total value of petroleum products produced by an oil refinery and the price of the input (crude oil).

For investors, the silver lining, if at all, is that these stocks appear to be trading at attractive valuations at present. Analysts from Antique Stock Broking Ltd pointed out in a note on 28 December that, “all the OMCs are currently trading at about 0.5-0.7 times FY13 price-to-book ratio (excluding investments) and hence pose an attractive entry point."

Perhaps, in the short run, these stocks might fare better on positive news flows such as government subsidy compensation or price hikes.