Though we haven’t included IOC in our Dead Monk’s Portfolio, we do hold it in our personal portfolio for its high dividend yield. It has been consistently paying dividends for last 14 years.
- We look at how IOC has increased its book value per share over the last 14 years. How this data can be used to make decisions about when to enter this stock for long term?
- What are the rolling 3 & 5 Year returns of the stock and its relation with P/BV ratio?
- We also look at reasons as to why this approach might fail.
|IOC’s Book Value has been a support for its stock price|
|3 year Rolling Returns & P/BV per share of IOC|
|5 year Rolling Returns & P/BV per share of IOC|
- This approach relies solely on the stated book value of the share. And book values can be inaccurate because they do not always reflect the true networth of a company. This can be attributed to use of different accounting methods for items like depreciation, which can significantly affect the book value.
- The above book value based approach does not give any weightage to company’s management (appointed by government of India in this case). And though oil prices (in particular petrol) have been deregulated, govt. still has a shadow control over the prices. But in last 2-3 months, things have started looking brighter for oil companies like IOC.
- Another issue with this approach is that it does not evaluate alternatives available within the sector. For example, there are other refiners like HPCL, BPCL. And BPCL itself has profitable interests in oil exploration business too.