HPCL, BPCL, IOCL gain on fall in global oil prices

Shares of oil marketing companies (OMCs) like Indian Oil Corporation (IOCL), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL) were trading higher by up to 6% in otherwise subdued market after Brent crude prices fell in the international market.

At 11:39 am; HPCL (up 6% at Rs 323), IOCL (5% at Rs 176) and BPCL (3% at Rs 424) were up in the range of 3% to 6% on the BSE, as compared to 0.07% decline in the S&P BSE Sensex.

Shares of aviation companies such as SpiceJet (up 3% at Rs 115), Jet Airways (2% at Rs 393) and InterGlobe Aviation (1% at Rs 1,233) were also up more than 1% on the BSE.

“Oil fell near $64 a barrel as Saudi Arabia and Russia prepared for a clash with allied crude producers over whether to lift output and as China and the US exchanged threats over trade,” the Bloomberg report suggested.

An assurance of higher supply from Russia & Saudi Arabia (to offset any disruption from Iran) coupled with rising US crude production, has helped crude oil prices cool off from the highs observed in May'18.

Easing crude prices and softer refining crack spreads have helped Indian OMCs to adjust domestic retail prices downwards. Recently, the Government and OMCs were facing flak on account of increase in retail petrol and diesel prices. The petrol and diesel prices have now corrected by Rs 1.7 per litre and Rs 1.2 per litre from their highs seen at end of May'18.

“A correction in global crude/product prices has given OMCs an opportunity to restore and normalize the retail marketing margins. As a result despite frequent downward reduction in domestic retail prices, the marketing margins have gradually improved to around Rs 0.7 per litre (Petrol) and around Rs 1.5 per litre (Diesel) after hitting a low of Rs around 0.3/litre (Petrol) and Rs 0.7 per litre(diesel),” analyst at Antique Stock Broking said in sector update.

The brokerage firm continues to maintain our positive bias on OMCs and reiterate our BUY rating with target prices Rs 230, Rs 530 and Rs 440 for IOCL, BPCL and HPCL, respectively as the stocks are currently trading at inexpensive valuations to their FY20e standalone earnings.

In past six months, OMC has underperformed the market by falling in the range of 14% to 26% as compared to 6% rise in the S&P BSE Sensex.

Hindustan Petroleum Corporation Ltd.(HPCL)

Bharat Petroleum

Indian Oil Corporation