Petrol and Diesel Price Hike Boosts HPCL, BPCL, and IOC Shares by 2%: What’s Next for the Oil Marketing Companies?
Shares of oil marketing companies (OMCs) such as Hindustan Petroleum Corporation Limited (HPCL), Bharat Petroleum Corporation Limited (BPCL), and Indian Oil Corporation (IOC) experienced a notable increase of 2% on Tuesday, following the government’s recent petrol and diesel price hikes. The latest increment raised prices by around 90 paise per litre, succeeding the previous hike of up to Rs 3 per litre announced just a few days earlier. In Delhi, petrol prices have risen to Rs 98.64 per litre from Rs 97.77, while diesel prices have increased to Rs 91.58 per litre from Rs 90.67, reflecting the government’s aim to alleviate the financial pressures on OMCs amid persistently high global crude oil prices stemming from geopolitical unrest and supply disruptions.
The back-to-back fuel price hikes signal a potential shift in the government’s approach to managing domestic fuel pricing, particularly as Brent crude oil prices exceeded $110 per barrel, and WTI crude hovers around $108 per barrel. Analysts from Nomura have raised concerns, noting that the latest Rs 3 increase is insufficient compared to existing under recoveries faced by OMCs. They suggest this sequence of price adjustments could be the beginning of further scheduled hikes, akin to the previous pricing environment during the Russia-Ukraine conflict in 2022. Such measures may be critical for OMCs to sustain financial viability amidst ongoing market volatility and increasing operational costs.
Evaluating the competitive landscape, Nomura highlighted that IOC is strategically positioned to weather the current market challenges owing to its favorable refining margins and lesser exposure to fuel marketing relative to its refining throughput. Looking ahead, IOC’s anticipated increase in refining capacity could set it apart from its competitors, enabling it to capitalize on strong refining margins and a surfeit of petrol and diesel output. Nomura maintains a ‘Buy’ recommendation for IOC and BPCL, while advising a ‘Neutral’ stance on HPCL, which is projected to be significantly affected by higher operational losses due to its leveraged marketing exposure. Given this trajectory, there are concerns that all major OMCs could potentially exhaust their balance sheet equity in the coming years if current loss patterns persist.
Source: The Economic Times
(Expert Note: This report was prepared by the Wealthova team.)