BPCL, HPCL, Indian Oil shares get bearish calls from analysts despite falling crude oil prices. Here's why
Indian Oil Corporation (IOC), Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd (BPCL) shares - the state-run Oil Marketing Companies (OMC) - have received bearish views from analysts despite the recent sharp fall in crude oil prices, that touched a four-year low due to global growth concerns
Analysts expect the high auto fuel marketing margins of Indian OMCs may not sustain for long, as the government is likely to hike the excise duty on petrol and diesel prices.
Further, they believe the risk-reward is not favorable, given the overhang of LPG under-recoveries, risks to the sustainability of the Russian crude discount, and their aggressive capex plans.
Domestic brokerage firm JM Financial, in its latest report, stated that sustained lower crude prices could boost OMCs' auto-fuel marketing margins. At the spot crude price of $66 per barrel, OMCs' auto fuel marketing margin has jumped to ₹ 11 per liter, compared to the historical ₹ 3.5 per liter (or ₹ 5.1 per liter, adjusting for LPG losses).
However, the brokerage believes this is unlikely to be sustained at these high levels in the medium to long term, as historical precedent suggests the government is likely to hike the excise duty on petrol/diesel and/or cut petrol/diesel prices if crude prices remain low.
Further, JM Financial noted that OMCs' high marketing margins are likely to be partly offset by potential downside risks to GRMs if the tariff war leads to reduced global oil demand.
Citing CMIE data, the brokerage said that the discount on Russian crude to India moderated further month-on-month to USD 1.1/bbl in January 2025, down from USD 2.6/bbl in December 2024 — much lower than the USD 6–10/bbl discount seen in 1HCY23.
However, Russia's share of India's crude imports strengthened MoM to 36.4% in January 2025, up from 32% in December 2024 (compared to 20% in December 2022 and just 1–2% pre-Ukraine invasion).
During IOCL's 3QFY25 concall, the management shared that the Russian crude discount had come down to USD 1–1.5/bbl in 4QFY25TD (from ~USD 3/bbl in 9MFY25). Further, all three OMCs' managements stated that the Russian crude proportion had started moderating to 25–30% (from 30–35% earlier), and there is a possibility of a further decline in Russian crude supply going forward due to US sanctions. However, they added that it was premature to say whether US sanctions would lead to a complete end of Russian crude imports for Indian refiners.
The brokerage has a 'Sell' rating on HPCL share price with a target price of ₹ 320 per share and on IOCL share price with a target price of ₹ 125, while maintaining a 'Hold' rating on BPCL share price with a target price of ₹ 295. It believes that OMCs' integrated refining-cum-marketing margins will normalize around historical levels, as the government may retain the benefit of any sustained fall in crude prices through excise duty hikes and/or fuel price cuts to pass on the benefit to end consumers.
Further, the brokerage stated, 'OMCs' aggressive capex plans accentuate our key structural concern, as many of these projects fail to create long-term value for shareholders. At current market prices: a) HPCL is trading at 1.3x FY27 P/B (vs. its historical average of 1.0x); b) BPCL is at 1.2x FY27 P/B (vs. an average of 1.4x); and c) IOCL is at 0.9x FY27 P/B (in line with its historical average of 0.9x)'.
The brokerage maintains a BUY rating on Oil India (unchanged target price of ₹ 500) and ONGC (unchanged target price of ₹ 290), based on its Brent crude price assumption of USD 70/bbl (while the current market price is discounting USD 55/bbl of net crude realization). The bullish stance is also supported by a ~12%/25% production growth outlook over the next 1–3 years.
According to the brokerage, Oil India's earnings growth is likely to be aided by the expansion of the NRL refinery from 3 mmtpa to 9 mmtpa by December 2025, supported by management's guidance that excise duty benefits will continue for the expanded capacity as well.
'However, ONGC/Oil India's earnings will be negatively impacted if Brent crude prices sustain below USD 70/bbl. Every USD 5/bbl decline in net crude realization could lead to an 8–11% decline in FY26 EPS and valuation,' the brokerage noted.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
First Published: 22 Apr 2025, 09:31 AM IST
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
New Indian Express
29 minutes ago
- New Indian Express
Indian markets remain volatile amid global uncertainties and geopolitical tensions
CHENNAI: Indian equity markets remained volatile on Thursday amid heightened volatility, as global uncertainty and geopolitical tensions continued to weigh on investor sentiment. Weak global cues, combined with rising crude oil prices and mixed corporate activity, contributed to broad-based selling across sectors. BSE Sensex at 82,254.04 fell 261.10 points or 0.32% at 12.49 am and Nifty 50 shed 106 points or 0.42% to 25,035.20. Broader markets like Nifty MidCap 100 and Nifty Small Cap too mirrored the benchmark indices sliding 0.86% each. Global Cues Today's investor caution mainly stemmed from the ongoing assessment of the US-China trade agreement progress, and tensions in the Middle East, especially between US and Iran, lifting global crude oil prices and increasing fears of inflationary pressure Mixed signals from the US Federal Reserve on the interest rate trajectory also caused market worries. Today's only sectoral gainer was Nifty Pharma (0.7%) in the morning trade. While the sectoral losers were Nifty FMCG and Nifty Realty, which are 1.0% down due to rate sensitivity and concerns around demand growth weighed on these sectors. At the same time, a defensive buying trend helped lift pharmaceutical stocks amid global uncertainty. Top stocks performed today under Sensex were Asian Paints, Bajaj Finserv, Sun Pharma. While, the top losers included Infosys, Eternal, Tata Motors, Mahindra & Mahindra (M&M), and Hindustan Unilever (HUL). Stocks in Focus Share prices of Paytm's parent One 97 Communications Ltd declined 10% to ₹864.20 today, triggered by a sharp sell-off on high volumes following the Finance Ministry's denial of reports suggesting a merchant discount rate (MDR) being charged on UPI transactions. Sentiment was hit due to perceived regulatory overhang and profitability concerns in digital payments. Similarly, Asian Paints witnessed high activity with 35 million shares changing hands in a large block deal during the pre-opening session on NSE. The stock ended among the top gainers, possibly buoyed by strategic buying amid stable fundamentals. According to analysts near-term market direction is now likely to be guided by global risk sentiment and oil price trends, any further updates on the US-China trade dynamic, domestic macroeconomic indicators such as inflation data and IIP figures, and movement in foreign institutional investment (FII) flows. (Disclaimer: The stock trends mentioned in this report are for informational purposes only. Investors are advised to seek professional advice and rely on authentic market intelligence before making any investment decisions.)
India.com
30 minutes ago
- India.com
India is not imposing a trade ban on Pakistan supporter Turkey due to..., even Erdogan will be unaware of this reason
India is not imposing a trade ban on Pakistan supporter Turkey due to..., even Erdogan will be unaware of this reason Even after Turkey openly supported Pakistan during Operation Sindoor, India has not taken any drastic step against the foe country. In fact, the government has adopted a very soft stance regarding trade. The reason for this is that India sells more goods to Turkey than it buys from it. In this way, India earns a profit of 2.73 billion dollars every year. When Turkish President Recep Tayyip Erdogan not only made statements in favour of Pakistan but also sent drones, every Indian was so angry that demands started rising to stop everything from tourism to trade with Turkey. Why is India not banning trade with Turkey? According to the report of The Indian Express, an official said that the government has received many applications demanding a ban on the import of goods from Turkey. He said that apple producers of Himachal Pradesh and marble traders of Udaipur have demanded a ban on importing goods from Turkey, but India has a trade surplus with Turkey, that is, India sells more goods to Turkey than it buys from there. The official said that if trade with Turkey was banned, it would be a strong geopolitical message, but it would depend on how far you want to take it. What does India-Turkey trade in? Another reason for continuing trade with Turkey is that the trade surplus includes industrial exports. Such as engineering goods, electronics, organic-inorganic chemicals, whose export has increased significantly in the last five years. On the other hand, if we talk about Turkey, India mainly imports fruits, dry fruits, gold and marble from it. However, apple traders and marble traders of Udaipur, angry with Turkey for supporting Pakistan during Operation Sindoor , had demanded a ban on imports from Turkey. In this regard, he had also written a letter to the Prime Minister's Office. In the last few years, Turkey had also increased the import of petroleum products, but in the financial year 2025, it saw a decline. How much did India and Turkey trade last year? According to official figures, Turkey imported goods worth $2.99 billion to India last year, out of which fruits and dry fruits worth $107.12 million were purchased. At the same time, gold worth $270.83 million was purchased in the financial year 2025, which was more than in 2024. In 2024, gold worth $104.56 million came from Turkey to India. Talking about India, exports worth $5.72 billion were made to Turkey in the financial year 2025, out of which 50 percent i.e. $3 billion was engineering exports. Micro, Small Medium Enterprises (MSME) exports accounted for 35-40 percent. According to this, India has sold more goods worth $2.73 billion than Turkey.
Mint
30 minutes ago
- Mint
Anant Raj, DLF, Sobha fall up to 3% as realty stocks resume losing streak
Real Estate stocks in focus today: Domestic real estate stocks witnessed another round of selling pressure in Thursday's trading session, as the Nifty Realty index tumbled 2% to end the day at 1,006, extending its decline for the fourth straight session amid weak global cues and profit booking. All 10 constituents of the index ended the session in the red, with Anant Raj emerging as the top laggard, falling 3% to ₹ 556 apiece. It was followed by Phoenix Mills, Godrej Properties, DLF, Brigade Enterprises, Macrotech Developers, and Sobha, all of which declined over 2%. Real estate stocks had seen a stellar rally last week following the RBI's deeper-than-expected repo rate cut of 50 basis points and an unexpected CRR cut of 100 basis points. The move boosted investor sentiment, as lower interest rates potentially spur residential demand across major cities and ease borrowing costs for developers, aiding project financing and expansion. Following the RBI's double bonanza on Friday, the Nifty Realty index jumped 5%, emerging as the top-performing sector. In fact, the stocks had already been on a strong upward trajectory ahead of the RBI MPC meeting, driven by expectations of a continued rate-easing cycle, a trend that only accelerated after the policy announcement. From its April lows, the index has rallied 31%, making the real estate sector one of the biggest turnaround stories of 2025. However, the sharp gains may prompt investors to book profits, contributing to the ongoing decline in stock prices. Indian stock markets came under significant selling pressure in today's session, with broad-based declines triggered by weak global cues that weighed on investor sentiment, sending the Nifty 50 and Sensex down over 1%. Tensions between the US and Iran flared up after recent media reports suggested that the US is preparing a partial evacuation of personnel in the Middle East, following Iran's threat to strike US bases if nuclear negotiations fail. Further pressure came as US President Donald Trump announced plans to send formal letters to key trading partners within the next one to two weeks, outlining unilateral tariffs aimed at pressuring countries into trade agreements. Despite the tough rhetoric, US Treasury Secretary Scott Bessent signaled a potential extension of the current 90-day pause on reciprocal tariffs for countries showing 'good faith' in ongoing trade talks. While Trump said a framework on tariff rates had been reached to revive the fragile trade truce with China, the lack of specifics kept markets on edge, and China has yet to officially confirm any details about the trade deal. Even as the framework is being finalized, Commerce Secretary Howard Lutnick said on Wednesday that U.S. tariffs on Chinese imports would remain at current levels. Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
