HPCL, BPCL To IOCL: Strong Risk-Reward Profile Projects Bright Prospects For Indian OMCs

Indian oil marketing companies, including Hindustan Petroleum Corp., Bharat Petroleum Corp., and Indian Oil Corp., have been issued a positive outlook by Citi, citing a compelling risk-to-reward scenario, favourable valuations, and stable market conditions that make these OMCs attractive following the recent corrections. 

The recent decline in OMC stock prices, driven by weak second quarter earnings from inventory losses and other non-recurring factors, presents an opportunity for re-entry for market participants, according to Citi.

A key concern among investors has been the potential for sharp fuel price cuts, but the brokerage believes this risk has significantly abated, particularly as the government has avoided price cuts during the festive season and ahead of state elections. Retail prices now largely align with crude benchmarks, allowing the OMCs to absorb any minor adjustments.

Citi has a 'buy' rating on the stock with a target price of Rs 450 apiece, implying a potential upside of about 22% from the previous close of Rs 368. The brokerage has placed a 90-day catalyst watch on the company, projecting an earnings rebound in the coming quarters due to anticipated government support and improved refining margins. The brokerage is anticipating a sequential improvement in marketing volumes and margins as inventory losses from Q2 are unlikely to recur. 

HPCL stock rose as much as 0.68% during the day to Rs 371 apiece on the NSE. Twenty out of the 34 analysts tracking HPCL have a 'buy' rating on the stock, four recommend a 'hold' and 10 suggest a 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 11.7%.

Citi has a 'buy' rating on BPCL with a target price of Rs 390 apiece, implying a potential upside of about 28% from the previous close of Rs 303.60. The company’s refining and marketing operations provide resilience against market volatility, according to the brokerage. BPCL’s recent integration of the Bina refinery has strengthened its margins, and stable crude prices should help it maintain profitability in upcoming quarters. 

BPCL stock rose as much as 0.79% during the day to Rs 305.85 apiece on the NSE. Seventeen out of the 34 analysts tracking BPCL have a 'buy' rating on the stock, eight recommend a 'hold' and nine suggest a 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 16.7%.

Citi has a 'buy' rating on IOCL with a target price of Rs 190 apiece, implying a potential upside of around 36% from the previous close of Rs 138.95. The brokerage emphasised its significant market presence with over 40% share in India’s petroleum products. With retail prices largely tracking global crude benchmarks, the brokerage expects IOC’s marketing and refining margins to remain stable. 

IOCL stock rose as much as 0.87% during the day to Rs 140.14 apiece on the NSE. Fifteen out of the 32 analysts tracking IOCL have a 'buy' rating on the stock, eight recommend a 'hold' and 11 suggest a 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 19.5%.