HPCL, BPCL, IOC: Which oil marketing company should you buy after tepid Q1 results?

The combined net profit of state-owned oil retailers–Hindustan Petroleum Corporation (HPCL), Bharat Petroleum Corporation (BPCL) and Indian Oil Corporation (IOC)–plunged sharply by 78% year-on-year (YoY) in Q1FY25, weighed by lower margins. On the other hand, the combined gross sales declined marginally 0.8% YoY to Rs 4.68 lakh crore for the quarter ended June 2024.

Shares of these companies have outpaced the benchmark index BSE Sensex in the last one year. With a rally of 110%, HPCL emerged as the top gainer on the list. The scrip rallied to Rs 395.75 on July 30, 2024, from Rs 110.24 on July 31, 2023. BPCL and IOC also gained 85% and 95%, respectively, during the same period. However, analysts hold mixed views on oil retailers.

Net profit of HPCL declined the most 90.63% YoY to Rs 633.94 crore during the quarter under review. Gross sales inched higher by 1.41% YoY to Rs 1.20 lakh crore.

Jefferies gave an ‘Underperform’ call to HPCL with a target price of Rs 315. The global brokerage said that the June quarter results showed a weak set of numbers with EBITDA down 56% QoQ but was 21% ahead of estimates. HPCL remains vulnerable with no change to retail prices post-elections. Refining margins should remain range-bound, keeping integrated margins under pressure. It also added that the risk-reward is unfavourable after the steep rally.

On the other hand, Citi maintained a ‘Buy’ call on HPCL with a target price of Rs 420. According to YES Securities, HPCL had a negative buffer amounting to Rs 2440 crore as of Q1FY25 pertaining to LPG subsidy. This is in the absence of GOI receivables and the revenue to that extent has not been recognised.

“GRM was expectedly down QoQ from $7 per barrel to $5 per barrel. Slightly ahead of our estimates of $4.5 per barrel,” Citi said adding the government has yet to announce any budgetary compensation for LPG, though it could be announced later in the year. Such compensation would help oil marketing companies reverse these under-recoveries.

The bottom line of BPCL slipped 73.30% YoY to Rs 2,841.55 crore in Q1FY25 over Rs 10644.30 crore in Q1FY24. The top line declined marginally by 0.12% YoY to Rs 1.28 lakh crore.

Sharing its views on BPCL, YES Securities said, “BPCL’s Q1FY25 results exhibit a weak financial performance where the integrated margins were lower than our expectations.”

The brokerage added that the core gross refining margin (GRM) at $6.6 per barrel was strong while the market share in diesel and motor spirits highlights the company’s operational prowess. BPCL’s strategic reduction in debt, annual capex target of Rs 13,000 crore and enhanced refining efficiency position it as a compelling investment, reflecting a positive outlook for sustained growth. YES Securities maintained a ‘Buy’ rating on BPCL with a 12-month target price of Rs 415. Shares of the company traded at Rs 348.50 on July 30.

IOC also witnessed around 76% drop in net profit at Rs 3,528.49 crore for the quarter ended June 2024. On the other hand, gross sales fell 2.46% YoY to Rs 2.19 lakh crore during the same period. According to Prabhudas Lilladher, IOC had a cumulative net negative buffer of Rs 5,160 crore on LPG as on June 30, 2024.