The margin windfall, monitoring “considerably forward of normative ranges,” has created what brokerages see as a uncommon alternative in oil advertising and marketing firm (OMC) shares, with the benign crude oil worth outlook anticipated to assist earnings for the remainder of the monetary 12 months.
“Advertising and marketing margins on diesel/petrol at Rs 8.1/11.2 per ltr in YTDFY26 are monitoring considerably forward of normative ranges. Such elevated advertising and marketing margins have room for constructive shock to our/consensus estimates in FY26E even when there may be some hike in excise responsibility by the government,” stated Bhaskar Chakraborty, fairness analyst at Jefferies.
The revenue surge comes as oil costs have remained under $70 per barrel since March, with OPEC+ growing provides by 2.2mbpd between April-25 and September-25. Demand is projected to extend solely 0.68mbpd in CY25, with expectations of 1.5mbpd oversupply in Q4CY25, in keeping with the Worldwide Power Company.
HSBC’s evaluation reveals the multi-layered revenue increase: “Decrease oil worth is supportive of robust auto gas advertising and marketing margins (at present cINR5-9/litre) and this augurs nicely for the FY26 earnings. As well as, world LPG costs have additionally decreased, resulting in 30-40% discount in LPG losses per cylinder at present versus 1QFY26.”
“Decrease oil costs may also cut back the working capital requirement, thus decreasing the borrowing wants,” HSBC stated, whereas noting that “with stock losses already booked in 1QFY26, and Brent costs $65-67/b, with secure oil costs, shocks from stock losses are much less probably.”Additionally Learn | GST price minimize: Automotive and bike consumers hit pause button as auto shares rev up for festive bonanza
Goal worth upgrades are flowing thick and quick. HSBC raised HPCL’s goal worth to Rs 520 from Rs 490 and IOCL’s goal to Rs 190 from Rs 180, sustaining purchase rankings throughout BPCL, HPCL, and IOC. “We enhance advertising and marketing margin estimates given low crude oil costs resulting in larger earnings,” the brokerage acknowledged.
Jefferies takes a extra nuanced strategy, expressing a transparent desire for BPCL over friends. “This bodes nicely for BPCL’s earnings over HPCL’s, because the latter might be impacted extra from any excise responsibility hike,” Chakraborty famous, highlighting BPCL’s relative resilience to potential authorities coverage adjustments.
The desire extends to valuations. “Inventory has corrected 10% over the previous 12 months and trades at 1.4x fwd P/B, in keeping with HPCL, in contrast to the premium it used to commerce at prior to now. BPCL’s present low cost to Nifty of 55% on fwd P/B compares favorably with LT avg of 31%,” Jefferies noticed.
Jefferies maintains a purchase ranking on BPCL with a worth goal of Rs 410 at 1.8x September-26 P/B, and on IOCL with a goal of Rs 160 at 1.1x September-26 P/B. Nonetheless, the brokerage stays cautious on HPCL, sustaining an underperform ranking with a goal of Rs 340.
“HPCL’s earnings prone to be dragged by new challenge commissioning: Our evaluation of previous greenfield capability addn or complexity enhance in OMCs present years of drag on earnings attributable to lengthy interval to stabilize operations,” Jefferies warned, citing the complexity enhance in Vizag and the beginning of greenfield refinery in Rajasthan by end-FY26.
HSBC’s broader optimism extends past simply advertising and marketing margins. “GRMs proceed to development decrease than long-term averages, however product cracks stay wholesome and better than FY25. This means refining profitability might be higher than final 12 months if Russian crude combine doesn’t alter an excessive amount of.”
The earnings upside is not restricted to gas margins. HSBC famous that the federal government has provisioned Rs 300 billion in direction of compensating OMCs for LPG losses, although particulars on the payout mechanism are awaited. “These developments current upside dangers to earnings forecasts,” the brokerage concluded.
With oil costs anticipated to stay range-bound and advertising and marketing margins at multi-year highs, OMC shares seem to supply what HSBC calls “a big margin of security” – a uncommon commodity in at this time’s unstable markets.
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(Disclaimer: Suggestions, ideas, views and opinions given by the consultants are their very own. These don’t characterize the views of The Financial Occasions)
