HPCL, which had surged to its five-year high on Tuesday, lost ground on Wednesday.

The stock of the state-run oil refiner was down by 1.3% at Rs 321.90 on the BSE in mid-afternoon trades. It was close to the day's low of Rs 321.20. A higher volume of 12 lakh shares was recorded on the counter.

Divestment expectations led to a firm trend in the HPCL scrip in the last few months, after rallying from its late-September 2002 low. From a low of Rs 168.20 on 30 September 2002, it surged by 94% to settle at its 5-year closing high of Rs 326.50 on Tuesday (18 February 2003).

The HPCL scrip has been accumulated by arbitrageurs, after reports that the government has invited initial bids for divestment of its 34% equity stake in the state-run oil refiner. There are expectations of aggressive bidding for the government stake in HPCL. A successful bidder would have to come out with an open offer for additional 20% stake, which is the reason behind the arbitrageurs accumulating the stock.

Besides Reliance Industries, 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 divestment of IBP last year. In fact, a state-run oil PSU, Indian Oil Corporation, won the bid for IBP.

However, with Disinvestment Minister Arun Shourie stating today that the government will conclude the stake sale in HPCL and BPCL in six to eight months (a longer time span), the former's stock slipped.

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 for HPCL (which is the minimum price below which the divestment will not take place). Currently, the government's holding in HPCL is 51.01%.

HPCL has about 4,600 retail outlets in India and a 20% market share in retailing petroleum products.

However, on the negative side, oil sector employees have threatened to block the divestment in HPCL and BPCL. Last week, 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