BPCL, HPCL, and IOC: Which oil marketing company to bet on after Q4 results?

Oil marketing companies (OMCs) posted a fall in their consolidated net profits for the quarter ended March 2024 (Q4FY24). However, analysts retained their bullish views on the sector. The combined consolidated net profit of OMCs slipped 39% year-on-year (YoY) to Rs 12,647.75 crore during the quarter under review. On the other hand, the combined gross sales inched lower by 0.31% YoY to Rs 4.77 lakh crore.
 
YES Securities has a ‘buy’ rating on Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Ltd (HPCL) with target prices of Rs 900 and Rs 700, respectively. Shares of BPCL traded 0.50% down at Rs 603.80 during the afternoon on May 14. HPCL was at Rs 492, down 1.63% against the previous close.
 
The bottom line of BPCL declined 30.29% YoY to Rs 4,789.57 crore during the quarter under review. On the other hand, net profit of HPCL slipped nearly 25% YoY to Rs 2,709.31 crore.
 
According to YES Securities, BPCL’s strategic reduction in debt, annual capex of Rs 11,000 crore, and enhanced refining efficiency position it as a compelling investment, reflecting a positive outlook for sustained growth, to also be supported by the recent announcement of a 1:1 bonus issue.
 
Brokerage Motilal Oswal Financial Services has a ‘buy’ call on HPCL with a target price of Rs 600. “We maintain our ‘buy’ rating on HPCL and it remains our preferred pick among the three OMCs. We built in marketing margin of Rs 3.3/ltr in FY25-26, while MS/HSD marketing margins currently are Rs 5/ltr. We see demerger and potential listing of the lubricant business, the commissioning of its bottom upgrade unit and the start of Rajasthan refinery in Q4FY25 as key catalysts for the stock,” the brokerage said in a report.
 
Motilal Oswal Financial Services is also positive on IOC with a target price of Rs 195. Shares of the company traded 0.13% higher at 158.35. However, Prabhudas Lilladher has a ‘reduce’ call on IOC with a target price of Rs 151.
 
IOC is set to commission various projects over the next two years, driving further growth. Refinery projects, currently underway, are expected to be completed as follows: Panipat refinery (25mmtpa) by December 2025, Gujarat refinery (18mmtpa) by October 2024, and Baruni refinery (9mmtpa) by December 2024.
 
“The weak set of results was primarily on account of lower refining margins although gross marketing margins remained moderate. Refining capacity utilisation stood at 104.5%. IOCL declared a final dividend of Rs 7 per share. Factoring in structural weakness in GRMs and the inability to pass on the rise in fuel cost we anticipate gross refining margins at $6 per barrel for FY25 and FY26 and gross marketing margin at Rs 4.2 per litre for the same period. We rerate the stock from ‘sell’ to ‘reduce’ due to correction in stock price rating with a target price of Rs 151 based on 1x FY26E P/BV,” Prabhudas Lilladher said in a report.