Adding to the momentum, oil prices eased on Friday, offering some support to beaten-down OMC stocks. Brent crude futures slipped over 1% to $106.7 per barrel, while WTI crude also declined more than 1% to around $93 per barrel.
In today’s session, Hindustan Petroleum Corporation Limited (HPCL) led the gains, rising 4% to an intraday high of Rs 358 on the BSE. Bharat Petroleum Corporation Limited (BPCL) also climbed over 4% to Rs 298, while Indian Oil Corporation advanced 2% to Rs 144.
What are experts saying?
Deven Choksey said that with brent crude surging toward $115 per barrel amid escalating Middle East tensions, the government’s decision to cut excise duties acts as a strategic buffer. The move helps prevent a sharp spike in retail fuel prices while shielding oil marketing companies from a severe earnings downturn similar to 2022.
From an industry perspective, the excise cut significantly cushions OMCs. Prior to the reduction, companies were facing estimated marketing losses of Rs 11 per litre on petrol and Rs 14 per litre on diesel at $105 crude. The roughly Rs 10 per litre duty cut largely offsets these losses, allowing companies to operate near break-even levels without raising pump prices. Analysts had earlier projected a steep 80-90% decline in FY27 profitability if crude remained elevated near $110 without intervention.
The move, therefore, supports earnings visibility and dividend sustainability for key players such as Indian Oil Corporation, Bharat Petroleum Corporation Limited, and Hindustan Petroleum Corporation Limited.
Among the three OMCs, Nomura said Indian Oil Corporation appears better positioned if crude prices remain elevated for a prolonged period. In such a scenario, negative marketing margins tend to widen, particularly for Hindustan Petroleum Corporation Limited, which sells significantly more than it produces from its refineries, making it more vulnerable.
Meanwhile, Hardeep Singh Puri, Minister of Petroleum and Natural Gas, said the government chose to absorb the financial burden to protect consumers. He noted that the Centre took a substantial hit to its tax revenues to reduce the heavy losses faced by oil companies.
Earlier this month, UBS downgraded the three stocks amid mounting uncertainty over rising crude oil prices due to the US-Israel-Iran conflict. The brokerage revised target prices to Rs 175 for IOCL (from Rs 190), Rs 365 for BPCL (from Rs 425), and Rs 340 for HPCL (from Rs 540).
Rising geopolitical tensions and the recent surge in crude prices created uncertainty around earnings for Indian state-owned OMCs, drawing parallels with the oil market disruption seen in 2022, UBS analysts said.
Given their higher dependence on fuel marketing, these companies also face pressure when profits shift from marketing to refining. Reflecting this, marketing margin estimates for FY27 and FY28 have been cut by 43-45% and 22-26%, respectively.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)