 "Oil companies, Indian oil")
Shares of oil marketing companies (OMCs) rallied up to 7 per cent on the BSE in Monday’s intra-day trade as rising average gross refining margin, increased sales volume and market share gains have improved the sector’s outlook.
Among the individual stocks, Hindustan Petroleum Corporation (HPCL) rallied 7 per cent to Rs 293.40, while Indian Oil Corporation (IOCL) surged 5 per cent to Rs 96.05 and Bharat Petroleum Corporation (BPCL) gained 4 per cent to Rs 379.85 in the intra-day trade today. HPCL and IOC hit their respective 52-week highs. In comparison, the S&P BSE Sensex was up 0.71 per cent at 65,176 at 12:38 PM.
In the past one-year, shares of OMCs have risen between 18 per cent and 28 per cent on the back of a fall in crude oil prices. Brent crude prices have corrected 20 per cent in the past one year.
Meanwhile, the board of directors of BPCL last week approved the proposal for raising capital upto an amount not exceeding Rs 18,000 crore through rights issue. Currently, the stock is trading close to its 52-week high level of Rs 380.35, touched on June 15.
HDFC Securities upgraded BPCL to a BUY with a target price of Rs 442 per share owing to robust gross refining margins (GRMs), the sharp recovery in auto-fuel gross marketing margins owing to the decline in crude oil prices, and the reduction in LPG under-recoveries.
Despite a rise in the working capital requirement and higher capex in FY23, BPCL’s net debt/equity remains comfortable at 0.9x, which the brokerage expects will decline to 0.7x by FY25, even with a higher capex run rate of Rs 13,000 crore over FY24/25.
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Analysts at Geojit Financial Services expect HPCL’s performance to improve further owing to increased investments in refineries and marketing infrastructure. Moreover, HPCL’s new projects, which are in the stage of commissioning, and new initiatives may increase its topline in future, the brokerage had said in the Q4 result update.
Analysts at JM Financial Institutional Equities expects OMCs to recover Rs 16,000-Rs 17,000 crore of this shortfall in 1QFY24 (OMCs’ total EBITDA in 1QFY24 is expected at Rs 32,500-Rs 33,000 crore vs normalised quarterly EBITDA of Rs 15,500-Rs 16,000 crore) and the entire shortfall by July’23 assuming current margin trend continues.
The brokerage continues 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.
The brokerage continues 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, OMCs' marketing segment earnings could come under risk if brent crude price jumps above OMCs break-even crude price of $85/bbl and if any fuel price cut is followed by rise in crude price, as reversal of fuel price cut might be unlikely during the election period.
The upside risk to crude price exists as analysts believe OPEC+ will continue to support Brent crude price at $75-80/bbl, which is the fiscal break-even crude price for Saudi Arabia, given their strong pricing power.
The upside risk to crude price exists as analysts believe OPEC+ will continue to support Brent crude price at $75-80/bbl, which is the fiscal break-even crude price for Saudi Arabia, given their strong pricing power.
