Bharat Petroleum Corporation Ltd (BPCL), Hindustan Petroleum Corporation Ltd (HPCL), Indian Oil Corporation (IOCL) share price gain up to 140% in a year. The improved earnings outlook has been driven by good refining and marketing margins reported by these Oil Marketing Companies.
Analysts however see more gains for these stocks. The marketing margins will continue to remain firm for these companies, feel analysts. Marketing margins reflect the profit earned by OMCs by selling fuel on the retail outlets.
The refining margins also are likely to remain supportive as global demand is improving and interest rates are also elected to come down.
Further the Crude Oil prices though volatile, are rangebound and unlikely to rise significantly, said analysts.
Also Read- Delhivery shares: Kotak Equities upgrades stock to ‘Buy’, raises target price; sees over 24% upside
Analysts at Antique Stock Broking said that “OMCs are up 70%–100% over the last four months compared to Nifty’s 15%. Despite the sharp run-up, valuations remain inexpensive and fundamentals robust. Both refining and marketing margins remain strong, while LPG is likely to turn profitable again in 2–3 months”.
The refining upcycle continues as demand growth continues to exceed supply growth from new capacity additions, highlighted analysts. The refining margins that had fallen few months back have bounced back well. The Russian discounts on Crude oil imported by Oil marketing companies is favorable and expected to remain supportive for refining margins.
Crude oil prices too are rangebound. The Brent that had surged in September has cooled down and since mid December has generally ranged between $73-82 a barrel. This is favorable for margins for oil marketing companies.
Crude prices are expected to remain benign over the next 18–24 months as non-OPEC+ supply exceeds demand growth, said analysts at Antique. While OPEC+ rolling over voluntary cuts into 2Q could push crude up in the near term, it is unlikely to run away given the large supply overhang they added.
The valuations are also inexpensive despite run up in stock prices say analysts. Analysts at Antique Stock Broking say that adjusted for investments, OMCs trade at 5.0-5.3 times FY26 estimates EV/EBITDA (enterprise value to Ebitda) and dividend yield of 3.8–4.7%, nowhere close to being expensive.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it’s all here, just a click away! Login Now!
Download The Mint News App to get Daily Market Updates.
Published: 05 Mar 2024, 12:59 PM IST