BPCL, HPCL to account 31% of increment FY24 Nifty profit; OMCs may drag numbers in FY25!

BPCL, HPCL, IOC: Kotak Institutional Equities said Nifty constituent BPCL and non-Nifty component HPCL (Nifty constituent ONGC owns stake in HPCL) alone will contribute 31 per cent of the incremental Nifty profits in FY24, adding that oil marketing companies (OMCs) could drag down overall profits, as things normalise in FY25.

Kotak Institutional Equities is assuming FY2024-26 refining and marketing margins of OMCs to be significantly higher than historical levels. Kotak said IOC reported a beat on its Ebitda estimate, fuelled by a better-than-expected gross refining margin (GRM) and a higher marketing margin. BPCL’s reported GRM was above Kotak's estimate, while its implied marketing margin was below its estimate. Higher employee benefit expenses offset the operational beat, while Ebitda came in line, the brokearge said. HPCL's Q3 missed Kotak's Ebitda estimate due to a lower-than-expected marketing margin because of a suppressed margin on diesel.

"We expect net profits of the oil, gas & consumable fuels in the Nifty-50 index to increase 23 per cent in FY2024 led by higher profits of BPCL and HPCL (51 per cent consolidated with ONGC) on account of our assumption of higher marketing margins on automobile fuels compared to very low margins in FY2023, partly offset by lower refining margins and higher profits in the case of RIL from its retailing and telecom segments, which will offset lower profits in the case of Coal India and lower profits in the case of ONGC on the back of lower gas prices," it said.

Kotak said OMCS HPCL and IOC will also see a sharp recovery in profits in FY2024 but they are not present in the Nifty Index. For the December quarter OMCs' profitability soared 4.6 times to about Rs 12,000 crore in Q3 from Rs 2,600 crore in the year-ago quarter, due to strong marketing margins.

In terms of guidance, the HPCL’s management suggested that a recovery is expected in Q4FY24. Refinery throughput should be above 22mmtpa in FY24, and marketing sales volume should be about 44mmtpa, it said. Petrochemical production should commence in 2025, the HPCL management suggested.

BPCL’s management guided that MS consumption growth should be at 5 per cent over the next five years and diesel growth should be at 1.5-2 per cent despite the increasing EV adoption. Mozambique force majeure is expected to be lifted by June or July 2024, it said.

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