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IOC feels the company’s share price is “unduly depressed” at the moment because of the subsidy burden, which may be a concern for investors while going for disinvestment.
“We have shared with the Government that our share price is unduly depressed. One of the reasons for this was confusion over the pricing mechanism,” said R.S. Butola, Chairman.
The Government is keen to sell a 10 per cent stake in the oil refining and marketing company. Earlier, there were differences between the petroleum and finance ministries over the method of calculating the so-called under-recoveries of state-run oil marketing companies. This confusion had affected oil companies’ shares.
The current method calculates the under-recoveries, or revenue losses, as the difference of the import and export prices of petroleum products in an 80:20 ratio, as India imports 80 per cent of its oil demand.
The Finance Ministry had opposed this method and insisted on a shift to 100 per cent export parity pricing. This tug of war led the government to form the Kirit Parikh committee to solve the issue. The committee favoured the Petroleum Ministry’s view and recommended that the present method be continued. The recommendation, according to sector analysts, is good for oil companies. IOC shares have seen an upside of Rs 15-20 a share. But Butola said the implications of the report on IOC will be fully seen only when the Government accepts the recommendations of the Parikh expert group.
On Friday, IOC shares closed at Rs 213.20, up 1.62 per cent, on the BSE. Moreover, the decision on divesting shares of IOC depends on the Government. “They (Government) might go ahead with roadshows to get feedback and form a view. Depending on the feedback, they can go ahead or not,” Butola added.
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