Indian Oil Company (IOC), Hindustan Petroleum Company Ltd (HPCL), and Bharat Petroleum Company Ltd (BPCL) are set to ship sturdy earnings in H2FY25, making their shares interesting at present ranges, analysts famous.
Regardless of rangebound inventory efficiency post-Q2FY25 outcomes, favorable elements similar to steady crude oil costs ($70-$75 per barrel) and enhancing Gross Refining Margins (GRMs) ($5-$6 per barrel) assist constructive outlooks. Whereas LPG under-recoveries have risen to over ₹210 per cylinder in Q3FY25 attributable to seasonal elements, sturdy auto-fuel gross margins ( ₹7.5 – ₹11.5 per liter for petrol and diesel) offset these losses, in keeping with Sabri Hazarika, Senior Analysis Analyst at Emkay International.
With the December quarter of FY25 and H2FY25 earnings run-rate being sturdy, the brokerage agency doesn’t foresee any FY25 earnings downgrade for OMCs.
H2FY25 efficiency to be pushed by regular core metrics
Benchmark GRMs averaged above $5 per barrel in Q3FY25 to this point, indicating a $1.5 per barrel sequential enchancment. Though BPCL and HPCL face minimal stock losses, IOC might even see losses of $2 per barrel attributable to an extended stock cycle. Auto-fuel gross margins in Q3FY25 are projected to rise sequentially by 33% (petrol) and 60% (diesel). LPG under-recoveries exceeding ₹230 per cylinder are anticipated to ease later in FY25, highlighted Sabri Hazarika.
“OMCs have been hinting at the potential for LPG subsidy by the top of FY25; nonetheless, the sturdy auto-fuel advertising and marketing margins present an inexpensive earnings cushion. We foresee sequential enchancment in earnings, in Q3FY25E,” the analysts mentioned.
Earnings visibility may drive OMC inventory re-rating
Present inventory costs of OMCs might mirror considerations over crude oil costs and retail pricing insurance policies, however analysts see potential for additional re-rating.
Sabri Hazarika famous that at 6-6.5x EV/EBITDA, and factoring in a ~50% YoY earnings drop for FY25, OMC shares stay enticing, supported by a ~4% dividend yield.
Improved visibility on FY26 earnings, coupled with steps like frequent retail value revisions to keep up normative margins, may drive additional valuation beneficial properties. Moreover, with low coverage dangers within the close to time period — given restricted elections — OMCs are positioned for regular development.
Emkay International maintains a “Purchase” ranking on all three OMCs, with BPCL share value goal of ₹405, HPCL goal value of ₹475, and IOCL inventory value goal at ₹185.
Key dangers embody adversarial crude oil costs and downstream margins, forex motion, authorities insurance policies, and project-related points and overruns,. mentioned the brokerage agency.
Disclaimer: The views and proposals made above are these of particular person analysts or broking firms, and never of Mint. We advise traders to examine with licensed specialists earlier than making any funding selections.
