An Indian Oil Corp. gas station in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

India Refiners Crash on Fuel Relief as Goldman, Citi Downgrade

(Bloomberg) -- Indian state-run oil refiners crashed a second day as Goldman Sachs Group Inc. and Citigroup Global Markets Inc. downgraded the stocks after the government on Thursday asked them to subsidize retail fuel prices.

Citigroup downgraded Bharat Petroleum Corp Ltd., Hindustan Petroleum Corp Ltd. and Indian Oil Corp Ltd. to sell, while Goldman Sachs lowered the first two companies to sell, after the government cut the excise tax on gasoline and diesel by 1.5 rupees (2 cents) a liter and asked state-run oil marketing companies to absorb another 1 rupee/liter on the sale of these fuels.

The announcement came just before the market closed Thursday, driving refiners’ stocks down. They extended declines Friday, with losses of as much as 28 percent for BPCL, 25 percent for Indian Oil and 24 percent for HPCL.

India Refiners Crash on Fuel Relief as Goldman, Citi Downgrade

The imposition of price controls is an “unequivocal negative” that underscores “high political risk” associated with state-owned enterprises, Citigroup’s analyst Saurabh Handa wrote in a note.

The move would reduce pretax profit of state-run oil marketing companies by a combined 45 billion rupees ($612 million) in the year ending March 31, according to people with knowledge of the matter. On an annualized basis profit before tax may drop by about 90 billion rupees based on current sales volumes, they said, asking not to be identified as they aren’t authorized to speak to the media.

“Confidence in forward earnings and returns will become very low” with the imposition of price controls amid rising oil prices and elections next year, Goldman analysts including Nikhil Bhandari wrote in a note.

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