Shares of Hindustan Petroleum Corp., Indian Oil Corp., and Bharat Petroleum Corp. surged on Monday after brokerages maintained a positive outlook on the three oil marketing companies.
The uptick in these stocks led to the Nifty Oil & Gas index hitting a record high of 9,874.40.
The well-supplied oil market, hardware upgrades and potential cross-holding upside would drive future earnings upgrades and multiples comparable to a decade ago, according to Morgan Stanley.
Though JPMorgan acknowledged the risk of decreased profits with possible fuel-rate cuts, it emphasised the stocks' affordability even with normalised earnings forecasts.
Here's What Brokerages Say
Morgan Stanley
Investment focus for Indian fuel retailers to shift from oil prices to infrastructure upgrades.
Expects the hardware upgrades to add $4 billion Ebitda over three years for all three fuel retailers, with HPCL reaping half the benefits.
Indian fuel retailers are expected to enjoy margins 25–30% above mid-cycle levels with limited growth in fuel refining.
India's growing interest in Venezuelan oil imports could form 10–15% of refiners' crude diets and add 15% to earnings for the three companies.
Expects the OMCs' future five-year plan to focus more on petrochemicals, gas and renewables.
JPMorgan
The OMCs are unlikely to sustain current elevated profits due to potential fuel-rate cuts.
Retains positive view as stocks remain inexpensive at normalised earnings forecasts.
The OMC fortunes heavily depend on underlying spot prices. Expects crude prices to range between $83–75 in 2024–25.
Forecasts a capex of Rs 66,000, Rs 50,000, Rs 36,000 crore over fiscal 2025–27 for IOC, BPCL and HPCL respectively.
Prefers BPCL over the other two OMCs due to exploration and production potential.
HPCL downgraded due to risk of initial losses from new plant startups in 2024.
Key risks include higher crude prices and sharper-than-modelled retail-price cuts.
Expects the OMCs to report lower profits on a sequential basis in the third quarter and petrochemical margins to remain largely flat with slight improvements across the basket.
BofA Securities
Maintains 'underperform' ratings on HPCL and BPCL on possible rate cuts and premium valuations.
Reiterates 'neutral' on IOC on balanced risk-reward.
Reduces Brent price forecast for 2024 to $80 from $90 previously.
Expects higher chance of fuel-rate cuts as the current gross-refining-margins stand higher compared to the time before the Russia-Ukraine war.
Raises Ebitda estimates for the OMCs by 2–87% for fiscal 2024–26.
Expects the OMCs' Ebitda to fall sequentially in the third quarter.
Fall in Ebitda due to lower GRMs and fall in LPG margins.
HPCL's stock rose as much as 4.29% during the day to a 52-week high of Rs 438 apiece, while IOC surged 2.56% to a 52-week high of Rs 136.10. BPCL gained 2.47% to Rs 464.30 apiece on the NSE.
Shares of HPCL were trading 1.77% higher at Rs 427.45 apiece, while that of IOC were trading 0.57% higher at Rs 133.45 apiece. BPCL was trading 0.60% higher at Rs 455.80 per share compared to a 0.56% decline in the benchmark Nifty 50 at 12:26 p.m.
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