Oil marketing companies (OMCs) in India will find support with international crude oil prices sustaining below the $80 per barrel mark soon. The three major OMCs – Indian Oil Corporation Limited (IOCL), Bharat Petroleum Corporation Limited (BPCL), and Hindustan Petroleum Corporation Limited (HPCL) reported decent revenue growth in the July-September quarter of fiscal 2023-24 (Q2FT24) with improved draft refinery margins.
Indian Oil reported a net profit of ₹12,967 crore in the September quarter against a net loss in the year-ago period at constant fuel prices, while Bharat Petroleum also returned to the black after reporting a net profit of ₹8,243.5 crore in the quarter under review.
International Brent crude price normalized to sub-$80/bbl driven by easing supply-side concerns as so far there has been no significant material impact on oil supply flows, due to the war between Israel and Hamas, and alleviating fears of it escalating. into a wider regional conflict.
Domestic brokerage firm JM Financials said in its latest report that the gross marketing margin of OMCs jumped to. ₹7.9 per liter compared to the historical margin of ₹3.5 per liter and gross car fuel integrated margin rose to ₹16.8 per liter compared to the historical margin of ₹11.3 per liter.
”Optimism on OMCs will depend on crude sustaining below ~$80/bbl with OMCs’ FY24 P/B valuations (at ~0.9x for HPCL/IOCL and 1.1x for BPCL) being only a 10 percent discount to historical average after recent ones. rally,” said JM Financials.
Which oil explorers will benefit from high crude prices?
The brokerage maintained a “buy” rating on Oil and Natural Gas Corporation (ONGC) at a target price (TP) of ₹225 and Oil India at a target price of ₹355, considering the strong dividend game (of 6-8 percent)
”Our TP is based on a net crude realization of $65/bbl, and various changes in income tax suggesting that the government is fine with ONGC/Oil India making a net crude realization of ~$75/bbl,” JM Financials said.
Brent crude price of $75-80/bbl is a sweet spot for ONGC/Oil India as it improves visibility for clean crude realization of $75/bbl by removing the risk of ad hoc fuel subsidy burden, according to the brokerage.
The Organization of the Petroleum Exporting Countries and its allies (OPEC+) will meet for their next oil production policy decision on November 26, to consider whether to make further oil supply cuts.
Saudi Arabia and Russia have extended their combined oil production by 1.3 million barrels per day (bpd) to the end of the year, which the oil majors first announced in July 2023, to support the stability of the oil market.
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Updated: 21 Nov 2023, 19:29 IST