Oil marketing companies (OMCs) are experiencing a notable surge in their stock prices, with shares of HPCL, BPCL, and IOCL witnessing gains of up to 4% on Tuesday. This uptick comes on the heels of a government announcement regarding an increase in excise duties on petrol and diesel, which has significantly impacted investor sentiment. As crude oil prices decline globally, this development has sparked interest in these state-run enterprises.
Recent Government Measures and Their Impact
On April 8, the Indian government implemented a ₹2 hike in excise duty for both petrol and diesel. This decision has caused a ripple effect in the stock market, particularly affecting the shares of Hindustan Petroleum Corporation Ltd (HPCL), Bharat Petroleum Corporation Ltd (BPCL), and Indian Oil Corporation Ltd (IOC). Following the announcement, HPCL’s share price surged by 4%, while BPCL and IOC recorded increases of 2.7% and 2.06%, respectively.
- Excise Duty Increase: ₹2 per litre on petrol and diesel.
- LPG Price Adjustment: An increase of ₹50 per cylinder, with a review every fortnight.
Analyzing the Effect on OMCs
The recent changes in excise duties are expected to influence the profit margins of these oil refining companies. With crude prices dropping to $64 per barrel, OMCs currently enjoy a marketing margin of ₹12 per litre. However, this margin is projected to decrease to ₹10 per litre after the excise adjustments take effect. According to a report from Antique Stock Broking, this adjustment still keeps margins significantly above their projected FY26 estimate of ₹4.8.
- Current Marketing Margin: ₹12 per litre.
- Projected Margin Post-Excise Hike: ₹10 per litre.
- FY26 Estimated Margin: ₹4.8 per litre.
Experts at Antique Stock Broking anticipate that LPG underrecoveries will decrease to ₹60 per cylinder by August, driven by falling propane prices. This could lead to a dramatic shift in market dynamics, with potential for underrecoveries to reach zero shortly thereafter.
Future Outlook for OMC Stocks
Year-to-date, OMC stocks have faced declines ranging from 7% to 16%, primarily due to the lack of provisions for FY25 LPG under-recoveries in the Union Budget, which amounts to ₹413.4 billion. Despite this downturn, analysts suggest that the current valuations of OMC stocks—trading at 4.1x to 4.5x EV/EBITDA—present attractive investment opportunities.
- HPCL Price Target: ₹565.
- BPCL Price Target: ₹425.
- IOC Price Target: ₹172.
In light of these factors, Antique Stock Broking has issued a ‘Buy’ recommendation for all three OMCs. As of 10:00 AM, HPCL shares are up 0.38%, trading at ₹354.70; BPCL shares gained 1.04%, reaching ₹277.25; while IOC shares increased by 0.58%, trading at ₹129.10 on the Bombay Stock Exchange.
Conclusion
Investors are closely monitoring the evolving landscape of oil marketing companies as they navigate changes in government policy and market conditions. With strong auto-fuel margins and an optimistic outlook for refining operations, OMCs could be positioned for a robust recovery in the coming months. Keep an eye on these stocks for potential growth opportunities as the market adjusts to recent developments.
