 "OMCs log 52-week high on fund raising plan; HPCL, BPCL, IOC gain up to 4%")
Shares of state-owned listed oil marketing companies (OMCs) continued their upward movement, hitting 52-week highs on the BSE in Thursday’s intra-day trade on plans to raise fund to meet capital expenditure for their various projects.
Among individual stocks, Hindustan Petroleum Corporation (HPCL) rallied 4 per cent to Rs 302.20, while Indian Oil Corporation (IOC) gained 3 per cent to Rs 98.75 and Bharat Petroleum Corporation (BPCL) was up 2 per cent to Rs 393.35 in the intra-day trade today. In the past five trading days, the stock price of these OMCs have surged between 7 per cent and 13 per cent. In comparison, the S&P BSE Sensex was up 2 per cent during the same period.
IOC on Tuesday, July 4 said that its board of directors are scheduled to meet on Friday, July 7, 2023 to consider raising of capital through right issue of equity shares to meet the capital expenditure plan for its various projects.
Earlier on June 28, the board of directors of BPCL had approved the proposal for raising capital upto an amount not exceeding Rs 18,000 crore through rights issue.
Fitch Ratings said that announcements of plans to raise equity capital by BPCL and IOC should strengthen their capex spending and the credibility of their emission-reduction plans.
The global rating agency expects capex intensity to stay high for most of the Fitch-rated Indian issuers in the oil and gas sector. Recent announcements of plans to raise equity capital by two of India’s top-three majority state-owned OMCs - BPCL and IOC - should strengthen their capex spending and the credibility of their emission-reduction plans, said Fitch Ratings.
An injection of capital from the Indian government would provide further evidence for our assumption that the two companies would receive extraordinary sovereign support if needed, the key factor underpinning their ‘BBB-’/Stable ratings.
The government announced Rs 30,000 crore (roughly $3.7 billion) allocation for capital support to the OMCs during the budget in February 2023 and the rating agency believes the equity injection forms part of these plans. “We believe the size of the planned aggregate equity infusion may be higher than the budgetary allocation due to minority investors’ participation in the rights issues, but will monitor developments for more clarity. India’s third major OMC, HPCL, has not yet announced similar proposals, but we expect it to receive a share of the government’s capital support too,” Fitch Ratings added.
Meanwhile, Fitch Ratings expect the Indian oil marketing companies’ marketing segment to turn profitable from the financial year ending March 2024 (FY24) as crude oil prices fall to Fitch's assumption of $78.8 per barrel, following large losses in FY23 due to high crude prices and unchanged retail fuel prices.
“We expect refining margins to moderate in FY24 from the record high in FY23 because of easing in tight industry conditions. However, we expect upstream producers' cash flow generation to be robust, because crude oil prices should remain high, despite some decline from FY23's highs,” Fitch Ratings said.
Analysts at JM Financials said they continue to assume that the government will allow OMCs to earn higher marketing margin in FY24 to recoup their FY23 losses and expect FY25 GMM to revert back to historical GMM of Rs 3.5/ltr.
However, reports suggest that the oil ministry may nudge OMCs to cut petrol/diesel prices as OMCs’ balance sheet has largely got repaired and are likely to report strong profits in 1QFY24; however, the reports didn’t mention the likely timeline and quantum of possible cuts as it will depend on the level at which crude price and INR/USD exchange rate stabilise.
“Our calculation suggests OMCs can potentially cut petrol/diesel prices by Rs 4-5/ltr from August 2023 onwards, based on current crude price/product cracks, given the series of elections in the next 12 months”, the brokerage firm said in the oil & gas sector update.
Among individual stocks, Hindustan Petroleum Corporation (HPCL) rallied 4 per cent to Rs 302.20, while Indian Oil Corporation (IOC) gained 3 per cent to Rs 98.75 and Bharat Petroleum Corporation (BPCL) was up 2 per cent to Rs 393.35 in the intra-day trade today. In the past five trading days, the stock price of these OMCs have surged between 7 per cent and 13 per cent. In comparison, the S&P BSE Sensex was up 2 per cent during the same period.
IOC on Tuesday, July 4 said that its board of directors are scheduled to meet on Friday, July 7, 2023 to consider raising of capital through right issue of equity shares to meet the capital expenditure plan for its various projects.
Earlier on June 28, the board of directors of BPCL had approved the proposal for raising capital upto an amount not exceeding Rs 18,000 crore through rights issue.
Fitch Ratings said that announcements of plans to raise equity capital by BPCL and IOC should strengthen their capex spending and the credibility of their emission-reduction plans.
The global rating agency expects capex intensity to stay high for most of the Fitch-rated Indian issuers in the oil and gas sector. Recent announcements of plans to raise equity capital by two of India’s top-three majority state-owned OMCs - BPCL and IOC - should strengthen their capex spending and the credibility of their emission-reduction plans, said Fitch Ratings.
An injection of capital from the Indian government would provide further evidence for our assumption that the two companies would receive extraordinary sovereign support if needed, the key factor underpinning their ‘BBB-’/Stable ratings.
The government announced Rs 30,000 crore (roughly $3.7 billion) allocation for capital support to the OMCs during the budget in February 2023 and the rating agency believes the equity injection forms part of these plans. “We believe the size of the planned aggregate equity infusion may be higher than the budgetary allocation due to minority investors’ participation in the rights issues, but will monitor developments for more clarity. India’s third major OMC, HPCL, has not yet announced similar proposals, but we expect it to receive a share of the government’s capital support too,” Fitch Ratings added.
Meanwhile, Fitch Ratings expect the Indian oil marketing companies’ marketing segment to turn profitable from the financial year ending March 2024 (FY24) as crude oil prices fall to Fitch's assumption of $78.8 per barrel, following large losses in FY23 due to high crude prices and unchanged retail fuel prices.
“We expect refining margins to moderate in FY24 from the record high in FY23 because of easing in tight industry conditions. However, we expect upstream producers' cash flow generation to be robust, because crude oil prices should remain high, despite some decline from FY23's highs,” Fitch Ratings said.
Analysts at JM Financials said they continue to assume that the government will allow OMCs to earn higher marketing margin in FY24 to recoup their FY23 losses and expect FY25 GMM to revert back to historical GMM of Rs 3.5/ltr.
However, reports suggest that the oil ministry may nudge OMCs to cut petrol/diesel prices as OMCs’ balance sheet has largely got repaired and are likely to report strong profits in 1QFY24; however, the reports didn’t mention the likely timeline and quantum of possible cuts as it will depend on the level at which crude price and INR/USD exchange rate stabilise.
“Our calculation suggests OMCs can potentially cut petrol/diesel prices by Rs 4-5/ltr from August 2023 onwards, based on current crude price/product cracks, given the series of elections in the next 12 months”, the brokerage firm said in the oil & gas sector update.