OMCs extend gains on improved operational performance; IOC hits 52-wk high

In the past six months, IOCL (up 28%), HPCL (up 22%) and BPCL (up 19%) have outperformed the benchmark S&P BSE Sensex index

Shares of state-owned oil marketing companies (OMCs) continued trading higher on the bourses, gaining up to 3 per cent on the BSE in Tuesday's intra-day trade, on improved operational performance in the January-March quarter (Q4FY23) on sequential basis.

Hindustan Petroleum Corporation (HPCL) (Rs 263.35), Indian Oil Corporation (IOCL) (Rs 89.92) and Bharat Petroleum Corporation (BPCL) (Rs 371.95) rose 3 per cent each in the intra-day trade today. In comparison, the S&P BSE Sensex was up 0.41 per cent at 61,216 at 12:57 PM.

In the past six months, IOCL, which hit a fresh 52-week high today, has rallied 28 per cent, followed by HPCL (22 per cent) and BPCL (19 per cent). The benchmark index was up 1.2 per cent during the same period.

BPCL, on Monday, reported a net profit of Rs 6,478 crore in Q4FY23, a 159 per cent increase over Rs 2,501-crore profit in the same period a year back. On a sequential basis, net profit increased 2.3 times from the Rs 1,959 crore registered in the previous October-December quarter (Q3). Back then, the company was back in the black after two consecutive quarters of loss.

The average gross refining margin (GRM) of BPCL for FY23 came in at $20.24 per barrel as against $9.66 a barrel in the previous fiscal year. GRM is the amount that refiners earn from turning every barrel of crude oil into refined fuel products. “However, the suppressed marketing margins of certain petroleum products have offset the benefit of higher GRM,” the company said.

BPCL's operating profit improved quarter on quarter (QoQ) due to strong refining margins and improvement in marketing segment performance. In the ongoing quarter, GRMs are likely to be subdued but be countered by strong marketing margins, according to ICICI Securities.

However, the brokerage firm estimates GRMs to increase in H2FY24 on account of rise in demand. BPCL has also set a capital outlay of Rs 1.4 trillion over the next five years for expanding into petchem, renewable energy and CGD business.

Analysts at HDFC Securities have revised upwards its FY24/25E EPS by 9.1/7 per cent to Rs 40.5/47.3, to factor in higher marketing margins, partially offset by higher other expenses, interest costs and lower other income, delivering a revised target price of Rs 390 per share. The target price is premised on robust refining and marketing margins, offset by elevated debt, owing to a rise in working capital requirement and capex, the brokerage added.

"In the current quarter, GRMs are expected to be subdued but likely to be countered by strong marketing margins. However, we expect GRMs to improve in H2FY24 with anticipated increase in demand. HPCL’s refining capacity is expected to increase with expansion plans at its wholly owned Visakh refinery (from 8.3 MMTPA to 15 MMTPA) and a refinery cum petrochemical complex (9 MMTPA with a 74 per cent stake) in Rajasthan," analysts at ICICI Securities said. The brokerage firm maintains ‘buy’ rating on HPCL with a target price of Rs 310 per share.

As regards IOC, the  brokerage firm said the company’s operating profit improved QoQ due to strong refining margins and improvement in marketing segment performance. IOC also plans to increase its refining capacity to 107 MMTPA by 2024-25, it added.