IOC, HPCL, BPCL top picks post Q3; Q4 to be strong: Jefferies

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26 Aug, 2025 12:21

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Shares of Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation rallied 5-10 percent intraday Monday. Strong refining performance due to lower oil prices helped these oil marketing companies (OMCs) report strong earnings performance in October-December quarter.

Jefferies says India state-owned OMCs remain top picks in the oil & gas sector as it believes consensus and market is under-estimating earnings potential of these companies in a low crude price environment. Recently International benchmark Brent touched 12-year low at around USD 27 a barrel.

It expects Q4 for these companies to be better than Q3 and FY17/ FY18 earnings to be much higher than FY16 due to continued strong gross refining margins (GRMs) and likely some reversal of the inventory losses taken in FY15 and FY16.

It sees stronger Q4 due to higher GRMs, higher marketing margin and likely lower product inventory losses. According to it, GRMs should benefit from a further reduction in energy costs, lower inventory losses and higher gasoline & naphtha cracks.

Jefferies has slashed FY16 earnings per share estimates across all the three companies by 11-28 percent mainly to factor in higher inventory and forex losses. However, it raised FY17 and FY18 estimates by 21-35 percent to factor higher GRMs and product inventory gains in the marketing business.

Fair value for BPCL increases to Rs 1,090 from Rs 1,050, HPCL Rs 1,082 (from Rs 1,066) and IOC Rs 580 per share (from Rs 560), says the brokerage.

According to its note, key risks are sharp rise in crude beyond USD 60 a barrel; adverse government action particularly those related to subsidies, duties and retail prices of petrol and diesel.

At 11:50 hours IST, the scrip of Indian Oil Corporation was quoting at Rs 390.45, up 7.08 percent. Bharat Petroleum Corporation rose 3.6 percent to Rs 798.90 and Hindustan Petroleum Corporation climbed 6.85 percent to Rs 735.95 on the BSE.