Indian Oil Corporation expects to receive Rs.110bn remaining cash compensation ::Emkay

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Indian Oil Corporation expects to receive Rs.110bn remaining cash compensation from the government

State-run Indian Oil Corporation expects to receive Rs.110bn remaining cash compensation from the government by June-end for incurring revenue losses on selling diesel , kerosene and cooking gas at controlled rates in 2010-11 . Company got a letter from the government stating their commitment to compensate against revenue loss. The actual cash transfer of Rs.110bn is expecting in the next 2-3 weeks, latest by June end. Last month, the government had agreed to provide Rs.200bn as full and final settlement for 2010-11. Of this Rs.110.bn was the share of IOC, while BPCL had to get Rs 45.9bn and HPCL, Rs 43.8bn.

OMC's continue to sell diesel, domestic LPG and kerosene at government ruled prices. At present, OMCs are losing around Rs.18/litre on diesel, Rs.30/litre on kerosene and Rs.330/cylinder of LPG. For FY11, OMC’s lost Rs343.8bn on sale of diesel, Rs.195.6bn on Kerosene and Rs.220.3bn on sale of LPG.

OMC’s are trading at 0.8-1.2x 1-year forward P/BV, which is below the 5-year average of 1.5x, valuation looks attractive at current level. We maintain our Buy rating on HPCL and Accumulate rating on BPCL and IOCL.