HPCL's recent positive run was stymied on Friday after brokerage UBS Warburg downgraded the stock to 'Neutral 1' from 'Buy 1'.

The news pressured the scrip of the oil refining PSU lower by 0.6% to Rs 320.80 in early trades. It had earlier hit a low of Rs 319.50. Around 108,000 HPCL shares were traded on BSE so far.

The scrip has witnessed some degree of volatility of late on twists and turns in its divestment tale. On Thursday, the scrip gained 0.58% to Rs 322.80 after a 1.6% to Rs 320.95 drop on Wednesday. The scrip had reached its 52-week high of Rs 326.50 on Tuesday. In a longer timeframe, the scrip has done exceedingly well, surging 94% to Rs 326.50 (on Tuesday) from Rs 168.20 on 30 September 2002.

HPCL has weakened on Friday following reports that foreign brokerage UBS Warburg has downgraded the stock to 'Neutral 1' from 'Buy 1', citing that the price reflects a large portion of upside from privatisation.

Divestment minister Arun Shourie said on Wednesday that the government will conclude the stake sale in HPCL and BPCL in six to eight months time. On 7 February 2003, the government invited initial bids for its 34% stake in HPCL (by way of a strategic sale). Bidders have to submit initial bids by 17 March 2003. The government has set a net worth criteria of Rs 2,500 crore (Rs 25 billion) for eligibility.

As per market buzz, the government has set Rs 395 as the reserve price (the minimum price below which divestment will not take place) for HPCL. Currently, the government's holding in HPCL is 51.01%.

There are expectations that aggressive bidding will take place for the HPCL stake. The main reason for this is the widespread and strong retail network of the company, that could garner for the winning bidder an immediate reach. HPCL has about 4,600 retail outlets in India and a 20% market share in retailing petroleum products.

Indian corporate giant Reliance Industries and foreign companies like Shell are expected to submit bids. However, public sector undertakings will not be allowed to bid for HPCL. This is contrary to the government position during the disinvestment of IBP last year. In fact, a state-run oil PSU, Indian Oil Corporation, won the bid for IBP.

The only spoke in the wheel as of now is the threat by oil sector employees to block the divestment in HPCL and BPCL. Arun Shourie had said that any strike by oil sector workers to oppose the stake sale in these cash-rich oil firms may hurt their valuation and also reduce the benefit to employees.

For Q3 ended 31 December 2002, HPCL posted a gigantic 444% rise in net profit to Rs 330.62 crore (Rs 3.3 billion), compared to Rs 60.81 crore in the corresponding period of the previous year. Net sales jumped by 28% to Rs 14,210.23 crore (Rs 142.1 billion) from Rs 11,1156.38 crore (Rs 1111.56 billion) in DQ 2001. The company attributed the solid performance to buoyant international oil prices coupled with improved refining and marketing margins.

BSE code: 500104