Here is why CIMB is cautious on oil PSUs despite record FY16 nos

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26 Aug, 2025 12:21

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Moneycontrol BureauBrokerage house CIMB is advising caution on state-owned oil marketing companies despite the record profits posted by these companies in FY16.According to CIMB, the robust FY16 numbers were driven mainly by juicy refining margins, which may not sustain.“We view the FY16 oil marketing companies’ gross refining margin levels as exceptional and expect sustainable margins to be significantly lower,” says the CIMB note.“In fact, Singapore GRMs in FY17 to date have averaged USD 5/bbl compared to USD 7.7/bbl in FY16,” says the note.More reasons why CIMB feels PSU oil marketing companies may not be a compelling ‘buy’. (Excerpts from the CIMB note)*Indian oil demand growth in FY16 was exceptionally high, led by a 10.8 percent year-on-year increase in auto fuels, which we expect to moderate to around 5.5 percent.*Competition from private players (Essar/Reliance/Shell) is gathering pace and their market share touched 3.5-3.6 percent in FY16.*OMCs do not disclose the realised marketing margins, and hence the true level of margins has to be guessed based on inadequate available data* Despite lower dues from the government and record refining profits, continued refining capex, a mandatory 30 percent dividend payout, higher working capital (as oil prices rise) and possible E&P acquisitions will ensure that net debt levels will not drop materially from FY16 levelsCIMB has an ‘add’ rating on Indian Oil Corporation and ‘reduce’ ratings on HPCL and BPCL.