Positive on oil marketing companies: Taher Badshah

In a chat with ET Now, Taher Badshah, Senior Vice President & Co-Head Equities, Motilal Oswal AMC, shares his views on OMCs.

ET Now: What is your opinion on the oil marketing companies?

Taher Badshah: The operations of OMCs are gradually on the mend, balance sheets are clearly on the mend both in terms of free cash flow generation for these companies reduction and working capital and consequently debt and interest cost as well. So that part is clearly being helped by the deregulation and the decline in subsidy burden for these companies.

One of the missing pieces or one of the drags as of now on the business and probably that is likely to continue for a while is going to be the lower GRMs. We do not really have as much of an expectation from that side but there seems to be a good amount of balance on account of recovery and marketing margins notwithstanding the price cuts that have happened recently as well.

So while the stocks have seen a decent run up they seem to be and we probably may not see the kind of magnitude of upside that they have seen in the recent past but there are still business models which are evolving themselves and probably over the next few quarters the full strength of the business model is visible. So from that perspective we remain fairly positive.

However, you could probably look for opportunities other than OMCs or oil and gas to play the continuing decline that we are seeing in oil prices and the attention could shift on to companies which are going to be beneficiaries of crude or crude derivatives.