Crude Oil prices are moving down again for good, there are two kinds of impact due to this. One, Oil producing countries will be in the revenge mode, though they are not destined to get higher realization, they have enjoyed the fruits of Oil at its historic high. To the extent the price is under pressure, they are losing profits which they had already seen. Crude Oil price is going down due to fear among the Oil producing countries that they may lose the opportunity of even the prevailing prices as it slides further.
This fear among all producers is adding to more supply and bringing down prices further. But, oil importing countries are at the receiving end. Oil marketing companies are the biggest beneficiaries due to the crude oil price correction. They now have the advantage of the government releasing them from the crutches of controlled pricing at a slower pace and also the lower price of their inventories.
Among them the best managed ones reap further higher reward, one among them is HPCL. HPCL, along with refining also has been making good volumes in the lubes business, in which it is the third largest in the world. Lubes business is contributing to 35% of their profits and they have been consistently eating into Castrol’s market share. Castrol is the No. 1 Player in lubes business, but have been losing volume for quite some time now. Castrol’s losses have been adding up to HPCL’s market share.
Going forward lubes business is likely to contribute big time in the profits of HPCL, which is already reflecting in its stock price that has been up 50% in the last 3 months.
June quarter results came with great numbers, sales drops by 12% while profits grow by more than 3000% all due to the drop in inventory price.
HPCL has achieved record profits for the 2014-15, highest since its inception, in spite of Crude Oil price going down by more than half.
We bought HPCL into our portfolio at about ₹600 in December 2014; the stock hit a high of ₹990 in August 2015 before going into a correction. Come December 2015 all the profits from this investment will be tax free and with the strength this stock has been showing, it has a long way to go from here.