Today's Opening - 77.8
Today's High - 80.95
Today's Low - 77
Today's Closing - 77.85
This is the first time that I am writing on IOC.
Technical Indicators:
Three days of negative closing, with low volumes over the past three days. Negative closing with low volumes is the only encouraging sign for the stock.
The 10-day Rate Of Change has been negative since 25th Dec, 2019.
The 12, 26-day Moving Average Convergence Divergence has been negative since 5th Nov, 2019.
The Negative Directional Index has been stronger than the Positive Directional Index since 4th Nov, 2019 and the two indices have only been diverging over the past two months.
The 2-day Relative Strength Index has remained below 50 since 1st Nov, 2019.
The 20-day Commodity Channel Index has been negative since 18th Oct, 2019.
The 10-day Momentum has been negative since 11th Oct, 2019.
The closing has been below the 5-day Exponential Moving Average since 7th Oct, 2019.
Corporate Activity:
Factors that are impacting the nation's biggest oil company IOC, are many. Let's look at these in detail to get a perspective. About 65% of total crude oil is used to produce jet fuel, petrol and diesel... and demand for these products is very low now due to the Corona pandemic. IOC, which controls roughly half of the country's fuel market, alongwith HPCL and BPCL operate about 90% of the retail fuel pumps in India. But declining consumption is forcing these state refiners, which together own about 60% of India's 5 million barrel per day (bpd) refining capacity, to reduce the amount of crude they process as storage facilities fill up with unsold products.
Fuel sales in the first two weeks of March fell by 10% year on year. With the lockdown announced for another three weeks, we are staring at an even more than 10% decline in jet fuel, petrol and diesel demand in March, which will necessitate cut in the refineries' throughput by 10-20%, as they face a problem storing bitumen. Unlike petrol and diesel that can be supplied across the country by pipeline, refiners rely on trucks to transport bitumen, which is used to build road.
According to industry body, Society of Indian Automobile Manufacturers (SIAM), transportation has historically accounted for two-thirds of India's diesel use, but a steady decline in diesel's discount to petrol (because of removal of subsidy and increase in taxes) has seen sales of diesel-powered cars fall to a record low share of total sales. Diesel-powered cars accounted for 19% of total car sales in India in FY 18-19, compared with nearly 50% of sales in FY 12-13. In 2010, on an average, diesel traded at a discount of Rs 23 per litre in comparison to petrol but now the difference is less than Rs 7 per litre.
A slowdown in demand growth in India, the stress in automobile sector, sluggish demand of diesel cars over petrol cars, Government's ambitious target to make up to 30% of auto sales through electric vehicles by 2030, non-inclusion of petrol and diesel under GST are a few factors which are going to continue putting pressure on the profitability of Oil Marketing Companies (OMCs) for atleast next 2 quarters.
IOC has begun supply of the world's cleanest petrol and diesel across the country with all its 28k petrol pumps dispensing ultra-low Sulphur fuel of 10 parts per million (BS-VI) a good two weeks before the April 1 deadline. The company has incurred a total expenditure of around Rs 17k across its refineries in India over three years to move from BS-IV (Sulphur content of 50 ppm) to BS-VI compliant fuel. Now that this major expenditure is done, is a big relief to the company as well as the investors.
Lower crude prices due to the global pandemic and the oversupply conditions generally mean, higher Gross Refining Margins (GRM's) and in turn higher profitability for the OMC's.
With effect from Jan 2020, the United Nations' shipping agency the International Maritime Organization (IMO) has banned ships from using fuels with a Sulphur content above 0.5%, compared with 3.5% earlier. Implementation of IMO-2020 is supporting diesel margins, which is again positive for the OMC's.
With the demand for cooking LPG having reached a near saturation-level in the country, there's a need to find out areas where the LPG can be utilized, say in automobiles. Hence IOC is investing to have atleast 10% of LPG to be produced from bio-mass in another 2-3 years and put in use, as this would be cost effective. This is being done in tune with the decision of World LPG Association to have atleast 50% of LPG from bio-mass by 2040.
Phinergy is an Israeli company that specializes in aluminium-air (al-air) and zinc-air battery systems. Metal-air batteries use metals like aluminium as the anode and air as the cathode, along with a liquid electrolyte, thus not needing electricity to recharge. Aluminium-based metal-air battery uses oxygen from the air and combines it with the metal to create an aluminium hydroxide, which activates the electrolysis process and creates an electric current. The al-air batteries offer many an advantage like higher range, energy density, safety, longer life-cycle, thus providing solution to the biggest impediments facing EV adoption in the country. The prevailing best available range is under 150 km per charge, even though Tata Motors had last month said it would offer up to 300 km for the electric version of its compact SUV Nexon but commercial supply is yet to begin. To strengthen its position in the overall energy space, IOC has picked up a minority stake in Phinergy. Metal-air batteries have great potential in electric mobility and stationary applications, aluminium is naturally available in the country with good extraction and recycling technologies.
At an operational level, IOC plans to automate all its retail outlets and augment its LPG distributor network.
Stock Outlook:
Indian Oil Corporation has been looking extremely weak over the past five months. The stock value has halved over the past one year. Currently, 76 is acting as a strong support level for the stock. And in case 76 gets broken, the stock can crash to 46. The stock has a resistance at 94 and doesn't look like 94 is going to be breached anytime soon. Keep accumulating on every dip, with a medium to long term perspective, when all the recent initiatives will start showing an impact in the corporate results.
Good info, as usual.
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