State-run oil marketing companies (OMCs) shares have witnessed an uptick recently on account of a sharp fall in crude oil prices.
On November 20, shares of OMCs, including Indian Oil Corporation Limited (IOCL), Bharat Petroleum Corporation Limited (BPCL), and Hindustan Petroleum Corporation Limited (HPCL), surged 14.40 percent, 13 percent, and 22.5 percent, respectively, from last month.
Crude oil prices have dipped in November and are currently trading around $80 per barrel - marking a sharp decline from $90 a barrel seen in last month. Prices cooled from the October levels due to demand worries and as the war in West Asia has not had a significant impact on the oil market.
“…Optimism on OMCs will be contingent on crude sustaining below ~USD 80/bbl with OMCs’ FY24 P/B valuations (at ~0.9x for HPCL/IOCL and 1.1x for BPCL) being only 10% discount to historical average after recent rally. At spot Brent price and actual product cracks, OMCs’ gross auto-fuel marketing margin has jumped to +INR 7.9/ltr (vs. historical margin of +INR 3.5/ltr) and gross auto-fuel integrated margin to +INR 16.8/ltr (vs. historical margin of +INR 11.3/ltr),” said JM Financial in a report.
In addition to the decline in crude oil prices, the healthy performance of OMCs in the September quarter has also worked in the companies' favour. The Indian refiners swung back to profit in the second quarter, posting a consolidated net profit of Rs 27,295 crore in the second quarter of FY24.
The country’s biggest refiner, Indian Oil, reported a consolidated net profit of Rs 12,967 crore in the second quarter, compared to a net loss of Rs 272 crore in the same period last year. Bharat Petroleum and Hindustan Petroleum registered consolidated net profits of Rs 8,501 crore and Rs 5,827 crore respectively in the quarter ended September 30.
“OMCs are in a sweet spot, given the strong H1FY24 reported so far, though some macro risks with respect to oil prices and the political scenario prevailing in the run-up to the elections. We raise FY24E EPS by nine percent, but retain the FY25 estimate; maintain HOLD with an unchanged TP of Rs 100,” said Emkay Global in a report post Indian Oil Q2 results.
Meanwhile, the Indian government, on November 16, slashed windfall tax on crude oil from Rs 9,800 per tonne to Rs 6,300 per tonne. The windfall tax on diesel is reduced to Rs 1 per litre from Rs 2 per litre.
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