IOC, HPCL, BPCL shares baking-in high margins, steep premiums, says CLSA; retains Sell on worries over marketing margins
IOC share price has gained over 36% in 2024 so far, the stock is up more than 75% in the past three months. BPCL shares have jumped 36% YTD and over 53% in three months, while HPCL share price has surged 34% YTD and 75% in three months.
As per a sensitivity analysis by foreign brokerage firm CLSA, these stocks are pricing-in much higher than historical marketing margins, a continuation of near-record refining margins and a notable premium to the global peer average EV/Ebitda multiple. Also Read: Graphite India, HEG share prices rise 6% : 3 factors keeping Jefferies cautiously positive on these stocks “While a cut in the retail prices of diesel or petrol looks less likely now, a 5%-7% rally in crude prices may again raise worries over marketing margins.
The government’s fiscal consolidation goal may make it look at avenues of raising fuel taxes after the elections," CLSA noted. These, along with large global refining capacity additions, may soon raise doubt over the continuation of current high margins, CLSA said.
The brokerage retained its ‘Sell’ ratings on IOC, BPCL and HPCL amid worries over their marketing margins. CLSA believes the likelihood of a fuel price cut is low as the general elections are near, while a 4-5% rise in Brent crude oil price may concern investors about the marketing profitability of IOCL, BPCL, and HPCL.
Also read: Nelco stock snaps a 2-day losing streak, gains 8% on strong volumes “At 5.5x FY25 EV-EBITDA (global peer average of 4.9x), the prices of IOCL, BPCL and HPCL are baking in GRMs of $9-12/bbl and marketing margins of ₹2.5-3.0/litre. Even if we consider a 6.0x FY25 EV-EBITDA, a steep 25 percent premium to global peers, these stocks are baking in ₹2.5-3 a litre marketing margin and $8-11 a
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