Advertising stays the popular sub-sector, pushed by expectations of decrease crude oil costs (FY26E: $65/bbl) and secure retail gas costs. Regardless of a latest INR2/litre excise obligation hike on petrol (MS) and diesel (HSD), advertising and marketing margins stay strong at ~INR12/litre, properly above our long-term assumption of INR3.3/litre.
This resilience, coupled with a wholesome 4% annual quantity progress, helps earnings visibility for oil advertising and marketing corporations (OMCs). Non-public gamers are capitalizing on sturdy margins, with their mixed diesel and petrol gross sales surging 19.7% YoY in FY25, outpacing state-run companies.
Whereas competitors intensifies, the sector’s earnings face restricted near-term dangers, with potential upside if crude stays subdued.
After sustaining a impartial stance since November 2023, the CGD phase is now turning enticing. Falling uncooked materials prices, pushed by a looming world LNG surplus and decrease fuel pricing slopes, are anticipated to spice up margins.
Moreover, rising CNG adoption—supported by favorable economics vs. conventional fuels—is more likely to maintain quantity progress. With compressed pure fuel (CNG) demand projected to develop at a gentle clip, CGD corporations stand to learn from each margin enlargement and quantity tailwinds, marking a notable shift in sector sentiment.The refining phase faces challenges as world internet capability additions (0.4/0.95 mb/d in CY25/26) outpace demand, worsened by the Worldwide Power Company’s (IEA) 300 kb/d downgrade to CY25 oil demand progress. Whereas Brent costs are forecast at $65/bbl in FY26/27, draw back dangers persist, probably denting profitability for upstream gamers like ONGC and Oil India. Although these companies commerce at low-cost valuations (0.8x–1.1x FY27E e-book worth), weak realization developments justify warning.
The sector’s near-term fortunes hinge on crude oil developments and coverage selections. Whereas advertising and marketing and CGD segments supply progress and margin resilience, refining and upstream actions face structural headwinds.
Traders could prioritize OMCs and CGD gamers, leveraging their earnings stability, whereas adopting a selective method in a unstable macro atmosphere. Dangers reminiscent of sharper-than-expected crude value declines or coverage shifts warrant monitoring, however the present setup favors downstream and gas-focused segments.
HPCL: Purchase| Goal Rs 455| LTP Rs 387| Upside 17%
Hindustan Petroleum reported EBITDA 61% above estimates, pushed by stronger-than-expected GRM of USD8.5/bbl. & advertising and marketing margin of INR4.5/lit, resulting in PAT of INR33.5b, (+114% beat). We mannequin a advertising and marketing margin of INR 3.3/litre for each MS and HSD in FY26/27, whereas the present advertising and marketing margins for MS and HSD are each above INR 10/litre.
We determine a number of key catalysts for the inventory going ahead: (1) the de-merger and potential itemizing of its lubricant enterprise, (2) the commissioning of its backside improve unit in 2QCY26, (3) the beginning of its Rajasthan refinery in FY26, and (4) LPG under-recovery compensation.
Mahanagar Gasoline Ltd: Purchase| Goal Rs 1760| LTP Rs 1368| Upside 28%
Mahanagar Gasoline (MAHGL)’s adjusted EBITDA margin stood at INR 8.35/scm, under our estimate of INR 10/scm (reported EBITDA: INR 10/scm). Throughout the quarter, MAHGL added 0.15 million home connections and 164 industrial/industrial prospects, taking the entire to five,105.
We consider MAHGL’s EBITDA margin has scope for additional enchancment, supported by two key components: (1) the latest CNG value hike of INR 1.5/kg and D-PNG value hike of INR 1/scm, which can help margins, & (2) declining uncooked materials prices in 1QFY26-to-date.
The autumn in crude oil & Henry Hub index costs, together with INR appreciation on a QoQ foundation, ought to assist decrease fuel procurement prices going ahead. We anticipate a ten% CAGR in quantity over FY25-27.
(Disclaimer: Suggestions, ideas, views, and opinions given by consultants are their very own. These don’t symbolize the views of the Financial Occasions)
