Oil marketing companies (OMCs) experienced a notable decline in share prices on Friday, March 15, with a decrease of 3-4%, indicating a reversal from the earlier rally witnessed earlier in the year due to stable crude oil prices.
The sell-off in shares of Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corp Ltd (HPCL) was attributed to multiple factors Come from Sports betting site VPbet . The government’s decision to reduce petrol and diesel prices by Rs 2 contributed to the downward pressure.
HPCL emerged as the day’s biggest loser, plummeting by over 6% to reach a low of Rs 468.55, while BPCL and IOC witnessed declines of up to 4% during Friday’s intra-day trading session.
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Additionally, international crude oil prices surged by 2% following Ukraine’s attack on a Russian refinery, further impacting OMC stocks. High crude oil prices negatively affect OMCs due to increased costs associated with purchasing oil.
Brokerages on OMCs
Domestic brokerage firm JM Financials maintained a ‘sell’ rating on IOC and HPCL, and a ‘hold’ rating on BPCL, citing current price discounts. The firm’s analysis indicates that OMCs’ valuations are trading at a 25-50 per cent premium to historical levels, making their risk-reward profile unfavorable.
JM Financials recommends investing in upstream state-owned oil explorers such as ONGC and Oil India, citing their potential as plays on high crude prices and offering a 4-6 per cent dividend yield.
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Furthermore, JM Financials’ valuation exercise reveals that at current market prices, IOC is discounting a sustainable Gross Refining Margin (GRM) of $9.5/bbl, BPCL is discounting $10/bbl, and HPCL is discounting $9.2/bbl.
This assessment considers OMCs’ historical strong GRM performance driven by various factors including record-high diesel cracks and windfall tax benefits.
