Crude oil prices have soften a bit, with the benchmark Brent falling to around $88 per barrel level, down 26 per cent down from recent heights of about $120 per barrel. Here’s how three oil marketing companies namely IOC, BPCL and HPCL and refiner Reliance Industries performed and what probably lies ahead of them.┬а
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Stock movement
OMC stocks have seen a steep fall of late. Shares of BPCL declined 28.7 per cent in the last one year. It was followed by BPCL (down 24.8 per cent) and Indian Oil Corporation (IOC) (down 23 per cent).
Shares of Reliance Industries, on the other hand, have fared better, falling only 8.5 per cent during the same period. Other oil & gas sector stocks, such as Mangalore Refinery and Petrochemicals (up 31.2 per cent) and Chennai Petroleum Corporation (CPCL) (up 89.4 per cent) rose for the year.
Outlook for OMCs
Edelweiss Securities in a latest note said OMCs remain counter-cyclical to crude prices. It felt OMCs tends to perform better in phases of falling crude prices.
It noted that retail margins for OMCs rebound sharply in the event of falling crude prices and product cracks. OMCs should earn super-normal margins in the near term to recoup recent large losses, the brokerage┬аsaid.┬а
Edelweiss said OMC stock prices have performed better amid falling crude prices. Furthermore, Indian
OMCs are yet trading at FY24E EV/Ebitda of 4 times against a global average of 6 times, ┬аdespite healthy return on equity (RoEs) of 16 per cent (global average 13 per cent).┬а
JM Financial in another note said OMCs can absorb a significant part of their FY23 auto-fuel under-recoveries without posing a risk to their Maharatna status.
It maintained BUY on HPCL with a target price of Rs 255) and BPCL (target price of Rs 385) on valuation grounds. The brokerage has a ‘hold’ rating on IOC. ┬а
Outlook for Reliance Industries
The outlook for Reliance Industries too is positive. Jefferies in a September 20 note said the oil-to-telecom major’s green hydrogen foray is part of its Net Carbon Zero target by 2035.
“Falling renewable cost and scale economics will lower green hydrogen cost. Given the capex intensity, RIL’s strong balance sheet and backward integration puts it in the driver’s seat in the $74 billion opportunity. RIL’s hydrogen business is worth $8 billion (Rs 100/share) at a 20 per cent discount to European benchmark,” the brokerage said while suggesting a target of Rs 3,080 on the stock.
