What is the outlook when it comes to PSU divestment that is picking up steam?
As an oil & gas play, BPCL is overrated. When crude prices go up, the inventory valuations of what we have will go up. Assuming that in the next two days, crude does not crash, we will see a lot of these guys report very good results on the back of higher inventory gains.
The downside of BPCL, HPCL, IOC is that they have not actually been able to pass on some of these crude price increases to customers in the form of rises in retail crude prices. The impact of inventory gains is going to be much higher compared to the retail margin destruction but the fact is they will make lesser margins whereas the inventory gains will be quite substantially positive. These two things give short-term views into results but longer term BPCL privatisation will show us what the real value of such companies is as they have a bunch of operations and can actually separate value with individual operations at a much higher level.
The oil and gas space among PSUs is relatively low priced compared to their potential. If there is more clarity on how disinvestment is going to happen and whether all or some are going to be divested, you could see a real rerating here. Unfortunately, this is the government and so I cannot comment too much on how they will actually execute.
BEML on the other hand is an engineering play and there is tremendous potential but it needs to go out of the hands of the government to realise that potential, we will have to see how that evolves and give it at least three years before things change. So, wait and watch. I do not think it is going to get over valued anytime soon.
