 "Shares of oil marketing companies rally up to 6%; BPCL, HPCL at new highs")
Shares of state-owned oil marketing companies (OMCs) were in focus and rallied up to 6 per cent on the BSE in Tuesday’s intra-day trade on favourable refining and marketing outlook.
Bharat Petroleum Corporation (BPCL) (up 6 per cent at Rs 357.60), and Hindustan Petroleum Corporation (HPCL) (up 5 per cent at Rs 399) hit their respective all-time highs. Indian Oil Corporation (IOCL) up 3 per cent at Rs 185.95, as compared to 0.36 per cent rise in the BSE Sensex.
BPCL surpassed its previous high of Rs 357.60 touched on February 16, while, HPCL surpassed its earlier high of Rs 396.66 hit on June 3. IOCL had hit a record high of Rs 196.80 on February 8.
Thus far in the calendar year 2024, OMC’s have outperformed the market with BPCL (57 per cent), HPCL (46 per cent) and IOC (42 per cent) rallying more than 40 per cent. In comparison, the BSE Sensex has gained 13 per cent.
Among individual stocks, HPCL has bounced back 8 per cent from its intra-day low of Rs 377 despite the company reported a massive 90 per cent year-on-year (YoY) drop in profit after tax (PAT) at Rs 633.94 crore in the June quarter (Q1FY25), as refinery margins fell and a fuel price reduction slashed marketing margins.
The company and other state-owned fuel retailers --IOC and HPCL -- had last year made extraordinary gains from holding petrol and diesel prices despite a drop in cost.
HPCL said the primary reasons for lower PAT are suppressed marketing margins on select petroleum products and reduced refining margins. Average gross refining margins (GRMs) for Q1FY25 were $ 5.03 per barrel ($ 7.44 per barrel during Q1FY24). The reduction in GRMs is primarily due to lower cracks in line with the trend of international product cracks, the company said.
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The oil refining and marketing activity is strategic for India's economic development. OMCs dominate the domestic market for key petroleum products such as motor spirits, high-speed diesel, jet fuel and liquefied petroleum gas (LPG). Uninterrupted supply of these products is contingent on the smooth operations of OMCs.
Meanwhile, given that oil accounts for nearly one-third of the country’s energy demand, India is poised to become the global leader in oil demand growth this decade.
The oil demand in India is set to increase and contribute significantly to India’s energy mix, with demand expected to reach 5.6 million b/d in 2024. Propelled by urbanization, industrialization, and the emergence of a wealthier middleclass keen on mobility and tourism, India is expected to exhibit the largest global oil demand growth between 2024 and 2030.
India’s oil demand is expected to post an increase of almost 1.2 million b/d by 2030. India's ambitious goal of expanding road connectivity, manufacturing, and construction activities is expected to support economic growth and further drive oil consumption in India, HPCL said in its FY24 annual report.
Natural gas demand in India is expected to increase by 6 per cent in 2024, mainly supported by higher gas use in industry (including the fertilizer sector) and stronger gas burn in the power sector amid the development of its national pipeline grid and city gas infrastructure.
Meanwhile, Nomura, a Japan-based brokerage firm, maintains a positive outlook on BPCL, reiterate its 'Buy' rating with a target price of Rs 368, underpinned by a favourable refining and marketing outlook and attractive valuation.
Analysts said BPCL reported a robust performance in the June quarter (Q1FY25) despite a challenging environment. They foresee a favourable outlook for refining operations throughout the remainder of the year, anticipating increased refining demand. They also believe that the most challenging period for FY25 may have passed already.