Brokerages split on outlook for OMCs as Russian oil debate heats up

Brokerages are mixed on their outlook for OMCs.

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As pressure regarding Russian crude imports from the United States of America intensifies, brokerages remained mixed on their outlook for India's oil marketing companies.

According to Hong Kong-based CLSA, the benefit India receives from Russian oil is lower than expected. Currently, India sources 36 percent of its oil imports from Russia, which accounts for just about 5 percent of global demand.

The brokerage noted that cost of crude prices for India could surge to as much as $90-100 per barrel if India halted Russian imports. CLSA added that while the issue of crude imports has turned political, India continues to assert its sovereign right to trade within global rules.

On the flip side, international broking firm JPMorgan flagged investor concerns over policy risks. Despite strong core earnings, stock price reactions for OMCs such as Bharat Petroleum, Hindustan Petroleum, and Indian Oil have been muted, which reflects skepticism that the government will allow OMCs to hold onto elevated margins.

Further, JPMorgan pointed towards weaker tax collections and potential GST cuts as additional overhangs. Even if taxes were raised, JPMorgan sees limited downside and prefers BPCL among peers. The brokerage also said that despite this, the risk-reward ratio looks attractive based on FY27 earnings, based on the assumption of a Rs 3-4 excise duty hike.

HSBC concurred; the brokerage sees support from lower oil prices and easing LPG losses, which will drive stronger earnings for OMCs going ahead. Although first-quarter results fell short of estimates due to higher inventory losses, the brokerage underlined that marketing margins remained robust and LPG losses narrowed.

HSBC retained its 'buy' call on Bharat Petroleum with a target of Rs 420, Hindustan Petroleum at Rs 520, and Indian Oil Corporation at Rs 190.

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