Indian Oil, HPCL, BPCL stocks gain on UBS upgrades; 20% potential upside seen

UBS anticipates the oil market to soften after the third quarter of 2024, which could benefit Oil Marketing Companies (OMCs) as their profits shift from refining to marketing.

Shares of India's downstream oil refiners—Hindustan Petroleum Corporation (HPCL), Bharat Petroleum Corporation (BPCL), and Indian Oil Corporation (IOC)—rose by up to 3 percent on July 29 following upgrades from UBS.

The international brokerage has upgraded Indian Oil to a "buy" rating and increased its price target to Rs 210 from Rs 150 earlier, suggesting a potential upside of 17 percent from the previous closing price.

HPCL also received an upgrade to "buy," with its price target raised to Rs 445 from Rs 333, indicating an 18 percent upside potential. BPCL, which was already rated 'buy' by UBS, saw its price target raised to Rs 400 from Rs 350, reflecting a 19.5 percent potential gain.

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Analysts at UBS anticipate that the oil market will soften after the third quarter of 2024, which could benefit Oil Marketing Companies (OMCs) as their profits shift from refining to marketing.

HPCL is expected to be the major beneficiary due to its higher marketing exposure, with a marketing-to-refining ratio of 2.2, compared to BPCL’s and Indian Oil’s ratios of 1.2 each.

UBS has also revised its financial year 2026 EBITDA estimates upward by 10 percent, 4 percent, and 22 percent for Indian Oil, BPCL, and HPCL, respectively.

The brokerage noted that the stocks of these companies present a favorable risk-reward scenario and are currently trading below their historical price-to-earnings, price-to-book, and EV/EBITDA multiples.

At 10:18 am, HPCL shares were trading 1.3 percent higher at Rs 381.80 apiece, BPCL was up 1.5 percent at Rs 333.85, and IOC was up nearly 2 percent at Rs 179.80 on the National Stock Exchange (NSE).

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