Oil marketing companies (OMCs) including Hindustan Petroleum Corporation Limited (HPCL), Indian Oil Corporation (IOC) and Bharat Petroleum Corporation (BPCL) together reported their highest-ever loss of Rs 21,228 crore for the half year ended September 2022 as these companies couldn’t manage to increase prices in tandem with international rates.
For the latest quarter ended their cumulative net losses came at nearly Rs 2,749 crore against a profit of Rs 11,124 crore in the corresponding quarter a year ago. Analysts hold a mixed view on these companies.
Should you Buy, Sell or Hold?
In a recent development, brokerage Prabhudas Lilladher maintained a ‘Reduce’ rating on IOC and BPCL post Q2 result. IOC reported a net loss of Rs 272.35 crore in Q2FY23 against a profit of Rs 6,360.05 crore in the corresponding quarter last year. Likewise, BPCL posted a loss of Rs 304.17 crore against a profit of Rs 2,840 crore during the same quarter.
“We believe OMCs earnings will be hit by a sharp jump in diesel marketing losses (current diesel loss at Rs10 per litre) given low inventory, gas to oil switch (led by high spot LNG prices) and drop in Russian exports, despite improvement in refining profitability,” Prabhudas Lilladher said in a report. The brokerage has fixed a target price of Rs 50 for IOC and Rs 260 for BPCL.
On the other hand, HDFC Securities is positive on BPCL with a target price of Rs 365. “Our ‘Buy’ rating on BPCL is premised on recovery in domestic demand for petroleum products, improvement in refining margins over the coming 18 months and gradual recovery in marketing margins,” the brokerage said.
Shares of IOC closed 0.71 per cent down at Rs 69.50 on November 9, 2022, while BPCL settled 0.94 per cent lower at 306.70.
The net loss of HPCL came at Rs 2,172.14 crore in Q2FY23 against a net profit of Rs 1,923.51 crore in the same quarter last year. Prabhudas Lilladher has a ‘Hold’ rating on the oil retailer with a target price of Rs 195. “As of September-end, HPCL’s debt has increased to Rs 68,500 crore against Rs 43,100 crore as on FY22 end due to weak financial performance,” the brokerage said.
Shares of the company closed 2.57 per cent lower at Rs 204.50 on November 9. On the other hand, the benchmark BSE Sensex settled 0.25 per cent lower at 61,033.
Centrum Broking has an ‘Add’ rating on HPCL with a target price of Rs 240. “Currently, excluding diesel, other oil products are earning healthy marketing margins. We estimate EBITDA recovery in FY24 and FY25 on the back of near-to-normal margins on auto fuel. This will recede concerns of higher borrowings,” Centrum said in a report. The brokerage also has an ‘Add’ rating on Indian Oil Corporation with a price target of Rs 78.
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