HPCL , BPCL, IOC share price decline 9-15% from their 52-week high: Buy, Sell, or Hold the stocks post soft Q4 results?

Stock Market Today- Hindustan Petroleum Corporation (HPCL), Bharat petroleum Corporation (BPCL) and Indian Oil Corporations Ltd (IOC) share prices are down 9-16% since their 52-week highs in February'2024

The volatility in Crude oil prices with a upward bias, the concerns on marketing margins being fueled further due to ongoing election season, weakness in Gross refining margins, a led to pressure on Hindustan Petroleum Corporation (HPCL), Bharat petroleum Corporation (BPCL) and Indian Oil Corporations Ltd (IOCL) share prices. The Q4 results also held testimony as came lower than expectations. However analysts feel risk rewards are favorable now for the stocks.

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Softening Crude oil prices- Brent Crude prices that were trading at close to $77 a barrel levels at the start of February rose past 90 a barrel levels in April. Since Oil marketing companies are dependent on imports to meet their crude oil needs the rise in Crude prices meant their margins would come under pressure. Further the higher crude prices also means higher working expenditure on imports and hence higher working capital requirements by the Oil Marketing Companies (OMC).

Not surprising the Hindustan Petroleum Corporation, Bharat petroleum Corporation (BPCL) and Indian Oil Corporations Ltd (IOCL) share prices came under pressure.

However the crude prices have corrected now and Brent Crude prices are trading at close to $82-83 a barrel levels.  The same is helping reduce overhang on Hindustan Petroleum Corporation, Bharat petroleum Corporation (BPCL) and Indian Oil Corporations Ltd (IOCL) share prices

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Marketing margins concerns easing-

Apart from rising crude prices, the concerns on marketing margins for Oil marketing companies also had risen due to ongoing general elections leading to no change in retail prices of auto fuels despite rising crude prices. Nevertheless as we are heading towards end of the general elections analysts feel Oil marketing companies will be allowed to adjust fuel prices and allow. 

Analysts at Antique Stock Broking said that “We expect daily petrol/ diesel price revisions to kick-in post the elections normalizing marketing margins.”

Refining Margins under pressure

Refining margins had seen pressure too which had also been reason for oil marketing companies as Hindustan Petroleum Corporation (HPCL), Bharat petroleum Corporation (BPCL) and Indian Oil Corporations Ltd (IOCL), seeing lower than expected Q4 performance.

Yes Securities said that Refining margins disappoint on lower distillate yield, while marketing better than expectations for HPCL

Analysts at HSBC Research on OMCs Q4 performance in their report said that “For OMCs as a group, 4Q turned out to be the weakest quarter in FY24 in terms reported profitability largely driven by poor performance by IOC which disappointed on GRM and losses in petrochemicals”.

Also Read- HPCL, BPCL shares in focus on oil prices, Q4 result expectations: Buy or Sell?

Favorable Risk Rewards-

Despite weakness in GRMs and weak Q4, analysts expect some bounce back in HPCL, BPCL, IOC share prices. Analysts at HSBC said that GRM weakness may persist but likely to have limited impact and their key thesis is premised on rangebound crude oil price and greater pricing freedom of auto fuels at pump, post elections. They have retained Buys on all Oil Marketing Companies as they believe OMCs will be able to maintain normative levels of combined R&M margins.

Generally analysts expect rebound in marketing margins and Refining margins too. 

Near-term weakness persists in  Gross Refining Margins (GRMs as well as marketing margins. However, both are likely to bounce back, said analysts at Antique Stock Broking. The refining demand-supply scenario remains favorable for two years and should lead to recovery in refining (GRMs), they added.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions

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