Oil & gas shares fire up: BPCL, Indian Oil, ONGC hit 52-week highs

In Q4FY23, OMCs will record 60-120 per cent QoQ Ebitda growth on the back of steady refining, auto-fuel margin recovery, and marginal LPG under-recovery.

Shares of state-owned upstream and downstream companies were in focus as Oil and Natural Gas Corporation (ONGC), Bharat Petroleum Corporation (BPCL), and Indian Oil Corporation (IOC) hit their respective 52-week highs in Wednesday’s intra-day trade.

Individually, shares of ONGC hit a 52-week high of Rs 167.65, up 1 per cent, and surpassed its previous high of Rs 167.25, which it had touched on June 9, 2022, whereas shares of BPCL (Rs 371.20), and IOC (Rs 84.64) gained up to 1 per cent in Wednesday's intra-day trade.

At 2:00 pm; the S&P BSE Oil & Gas index, the top gainer among sectoral indices, was up 0.42 per cent, as against 0.09 per cent rise in the S&P BSE Sensex.

Analysts at Emkay Global Financial Services expect earnings of oil marketing companies (OMCs’) to further improve sequentially in the March quarter (Q4FY23) after Brent averaged ~$81/bbl in Q4FY23, down 8 per cent quarter-on-quarter (QoQ), which implied small inventory losses for OMCs (of $1-2/bbl).

Moreover, the brokerage firm expects OMCs to record 60-120 per cent QoQ Ebitda growth on the back of steady refining, auto-fuel margin recovery and marginal LPG under-recovery.

“We estimate IOCL/BPCL/HPCL to report Rs 5,900/3,800/1,800 crore PAT in Q4. Also, the closing rupee was stable,” analysts said in their oil & gas sector report.

Overall in the oil & gas sector, OMCs would clock a strong Q4FY23, while upstream would remain resilient, it added.

The operational and financial linkages between the Government of India (GoI) and OMCs (IOC, HPCL and BPCL) appear to be stronger after GoI potentially plans to sell around 53 per cent stake in BPCL.

Analysts at India Ratings and Research (Ind-Ra), meanwhile, expect prices at the retail level to be stable even after a reduction in the crude prices and crack spreads for petroleum products to enable OMCs to recoup losses incurred during Q3FY22 and Q2FY23.

"In an event of any unfavourable movement of crude oil prices and crack spreads, the overall margins will remain dependent on the OMCs’ ability to pass on these prices fully," the ratings agency added.