Recommendation Review: Essar Oil

We had recommended Essar Oil in Volume 28 Issue No. 6,when it was trading at a price of Rs 90 per share. Its price has been drastically volatile ever since. It has dropped to the levels of Rs 69 per share four times and recovered to the level at which it has been recommended.

These fluctuations have resulted out of a number of developments on the company like higher profitability due to better refining margins, replacement of rupee debt by ECBs, expansion of retail network through addition of 50 outlets, likely loan deal with a Chinese bank and the oil ministry giving an in-principal nod to export parity pricing model for petroleum products.

A consistent news flow and high amounts of volatility have resulted in the current market price of the stock being Rs 74.1 per share, lower by 17.67 per cent to the recommendation price. Although there has been a massive depreciation in the stock price, we are of the opinion that this stock will see an appreciation in the medium-long term.

The company has gradually moved towards massive strengthening. It has ramped up its operations, exited from CDR, and is working on refinancing debt to ensure a healthier functioning. It has huge potential of growth from its exploration and production activities. Moreover, it has jumped back to profitability and has achieved superior refining margins.

In the long term, we believe that the company will perform much better than it has in the past, generate value and hence reflect in its stock prices as well.