OMCs not structural but trading play: Pankaj Pandey, ICICIdirect.com

In a chat with ET Now, Pankaj Pandey, ICICIdirect.com, talks about the OMC space.

ET Now: It has been an interesting quarter for the oil and gas names, particularly the oil marketing companies. They came out with numbers which were even better at times than what the street was working with; but, do you think these positives are already in the price, say for BP, HP or for that matter IOC?

Pankaj Pandey: In this particular quarter what we have seen is that oil marketing companies, especially if you look at the results of Indian Oil Corporation, the results were way above our estimates. We were expecting gross refining margins to be in the range of about $6-7; actually it came far higher than that. However, our sense is that if you look at the last quarter the companies benefitted largely because of the inventory gains because the crude actually went up from $55 to about $62-63. Now the challenge over the next quarter would be that from 62-63 kind of levels, if the crude remains at closer to or below $50 per barrel, a lot of these would lead to inventory losses for these companies. Therefore, you would not really expect a sustainable growth in earnings for these companies. Therefore, with regard to these companies, it is like a trading bounce or a trading kind of play rather than a structural play. For IOC, we have a target price of 400; we are likely to maintain that target.