OMC stocks plunge 5% on bearish Goldman Sachs note; Indian Oil has highest downside risk after Q2 results

Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL) fell short of Q2FY25 expectations

Shares of oil marketing companies (OMCs) dropped up to 5% on November 4 after Goldman Sachs issued a bearish outlook on the sector.

Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL) fell short of Q2FY25 expectations, with Goldman analysts citing weak marketing and refining performance as key contributors.

According to the November 4 GS note, OMC EBITDA for the July-September quarter was generally weaker than anticipated, with IOC’s EBITDA 21% below estimates, HPCL 6% lower, and BPCL 4% below projections.

For Indian Oil, earnings miss was driven by weaker-than-expected earnings across the refining, marketing and petchem segments. Meanwhile, for HPCL and BPCL, the miss was driven by marketing and refining, respectively, the note said.

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Goldman Sachs has retained its 'sell' rating on Indian Oil Corp, projecting a target price of Rs 105, implying a 27.5% downside from the November 1 Muhurat Trading close.

The downgrade follows IOC’s steep 99% drop in Q2 profit, impacted by shrinking marketing margins, with standalone net profit plunging to Rs 180 crore, well below estimates.

IOC’s gross refining margin (GRM) for April-September dropped to $4.08 per barrel from $13.12 a year earlier, and EBITDA fell 56% from the June quarter to Rs 3,773 crore, missing the projection of around Rs 11,000 crore.

The research and broking firm maintained a 'neutral' rating for HPCL and BPCL. HPCL’s target was reduced to Rs 370 from Rs 375 earlier, while BPCL’s target was raised to Rs 370 from Rs 365.

HPCL’s Q2 EBITDA grew 29% YoY to Rs 2,724 crore in Q2 but lagged behind the estimates. Its operating profit margin improved but missed expectations as well. The company’s GRM came in at $3.2 per barrel, versus an estimated $5.5 per barrel, with crude throughput at 6.3 MMT, slightly above the projections.

IOC cited narrower marketing margins, weaker refining margins from lower crack spreads, and declining international crude prices as key factors impacting profit.

Meanwhile, BPCL reported a Q2 net profit of Rs 2,397 crore, lower than the forecast of over Rs 4,000 crore, with a sequential decline of 20.5%. BPCL’s EBITDA for the quarter stood at Rs 4,547 crore, missing Street estimates, marking a 19.5% dip from the previous quarter. The EBITDA margin was 4.4%, shy of the expected 6.8%.

At 11:41 am, IOC, BPCL and HPCL shares were trading 5%, 4% and 3.1% down on the National Stock Exchange. In the last one year, the counter has surged 39%, 64% and 111 percent, respectively, beating Nifty's returns of around 23% during this period.

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