OMCs poised for strong H2FY25 earnings; IOC, HPCL, BPCL shares remain attractive: Analyst | Stock Market News

Indian Oil Corporation (IOC), Hindustan Petroleum Corporation Ltd (HPCL), and Bharat Petroleum Corporation Ltd (BPCL) are set to deliver robust earnings in H2FY25, making their stocks appealing at current levels, analysts noted.

Despite rangebound stock performance post-Q2FY25 results, favorable factors such as stable crude oil prices ($70-$75 per barrel) and improving Gross Refining Margins (GRMs) ($5-$6 per barrel) support positive outlooks. While LPG under-recoveries have risen to over ₹210 per cylinder in Q3FY25 due to seasonal factors, strong auto-fuel gross margins ( ₹7.5 – ₹11.5 per liter for petrol and diesel) offset these losses, according to Sabri Hazarika, Senior Research Analyst at Emkay Global.

With the December quarter of FY25 and H2FY25 earnings run-rate being strong, the brokerage firm does not foresee any FY25 earnings downgrade for OMCs.

H2FY25 performance to be driven by steady core metrics

Benchmark GRMs averaged above $5 per barrel in Q3FY25 to date, indicating a $1.5 per barrel sequential improvement. Although BPCL and HPCL face minimal inventory losses, IOC may see losses of $2 per barrel due to a longer inventory cycle. Auto-fuel gross margins in Q3FY25 are projected to rise sequentially by 33% (petrol) and 60% (diesel). LPG under-recoveries exceeding ₹230 per cylinder are expected to ease later in FY25, highlighted Sabri Hazarika.

“OMCs have been hinting at the possibility of LPG subsidy by the end of FY25; however, the strong auto-fuel marketing margins provide a reasonable earnings cushion. We foresee sequential improvement in earnings, in Q3FY25E,” the analysts said.

Earnings visibility could drive OMC stock re-rating

Current stock prices of OMCs may reflect concerns over crude oil prices and retail pricing policies, but analysts see potential for further re-rating.

Sabri Hazarika noted that at 6-6.5x EV/EBITDA, and factoring in a ~50% YoY earnings drop for FY25, OMC stocks remain attractive, supported by a ~4% dividend yield.

Improved visibility on FY26 earnings, coupled with steps like frequent retail price revisions to maintain normative margins, could drive further valuation gains. Additionally, with low policy risks in the near term — given limited elections — OMCs are positioned for steady growth.

Emkay Global maintains a “Buy” rating on all three OMCs, with BPCL share price target of ₹405, HPCL target price of ₹475, and IOCL stock price target at ₹185.

Key risks include adverse crude oil prices and downstream margins, currency movement, government policies, and project-related issues and overruns,. said the brokerage firm.

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 making any investment decisions.