Government Expresses Concern Over Low Valuations of State-Run Oil Companies

Union Minister for Petroleum and Natural Gas Hardeep Singh Puri has voiced the government's disappointment with the investor community regarding the low valuations of state-owned oil marketing companies (OMCs). The minister's comments highlight a growing concern over the disparity between the financial performance and market valuation of these crucial public sector enterprises.

Profitability vs. Valuation Gap

The three major state-run oil marketing companies—Indian Oil, Hindustan Petroleum Corporation Limited (HPCL), and Bharat Petroleum Corporation Limited (BPCL)—have collectively reported profits of ₹2.50 lakh crore over the past six years. Despite this impressive financial performance, their market valuations are surprisingly low, on par with food delivery startups Swiggy and Zomato, which have incurred losses of ₹24,000.00 crore.

Contribution to Corporate India

Minister Puri emphasized that these OMCs constituted 3.30% of corporate India's profit last year. However, their market value represents less than 1.00% of the total market capitalization, indicating a significant undervaluation.

Government's Stance on Ownership

While the government is considering selling partial ownership to potentially increase efficiency, there are no plans for full divestment. Notably, BPCL is not currently on the divestment block. This approach suggests a balanced strategy aimed at improving performance while maintaining state control over these strategic assets.

Perception Issues and Autonomy

Officials believe that state ownership may be creating investor perception issues. There are concerns that the government might reduce the companies' profitability to lower fuel prices. However, Minister Puri clarified that state-owned oil companies enjoy full autonomy in their operations.

Performance Metrics

Interestingly, these state-run OMCs deliver better dividend yields compared to their private counterparts, further highlighting the disconnect between their financial performance and market valuation.

Future Transparency Measures

In a move towards increased transparency and comparability, all state-run OMCs will adopt the same gross refining margin methodology as Reliance Industries from the next earnings cycle onwards. This standardization is expected to provide investors with a clearer picture of the companies' operational efficiency.

Indian Oil Corporation's Recent Activities

While not directly related to the valuation concerns, recent LODR (Listing Obligations and Disclosure Requirements) data from Indian Oil Corporation Limited (IOC) indicates ongoing corporate activities. The company has scheduled an Analyst/Investor Meet, suggesting continued engagement with the investor community. Additionally, IOC has announced a trading window closure for insiders until 48 hours after the financial results for the quarter and half-year are filed with the stock exchanges.