IOC, BPCL, HPCL shares shares fall today as Investec downgrades PSU OMCs on weakening diesel marketing margins

PSU oil marketing companies shares came under pressure on Tuesday after global brokerage firm Investec downgraded Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) to ‘sell’ from ‘hold’. All the three stocks declined 1 percent or more in the morning trade, reversing part of their recent gains.

Around 11 am, IOC stock was down 1 percent at Rs 164, BPCL slipped 1 percent to Rs 356, and HPCL fell 1.1 percent to Rs 458.

The downgrade follows a sharp rise in investor interest in OMCs (oil marketing companies) over the past two months, with shares gaining 20-25 percent since October. This rally has been driven largely by a surge in refining margins, with Singapore gross refining margins doubling to USD 13 per barrel in less than two months. However, Investec said in a note that this strength reflects “only part of the picture”.

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The brokerage said that OMC profitability is significantly more sensitive to marketing margins than refining margins. Crucially, the same diesel cracks that have boosted refining margins have pushed diesel marketing margins into negative territory, slipping from roughly Rs 4 per litre just a month ago. This deterioration comes despite soft crude oil prices and what Investec described as an environment of supportive policy.

Investec warned that if elevated diesel cracks persist, marketing profitability could weaken sharply and materially erode earnings for all three companies. It said the market appears to be overlooking this risk in its enthusiasm for the refining upcycle.

The firm has assigned target prices of Rs 330 for BPCL, Rs 145 for IOC, and Rs 425 for HPCL -- all below the current trading levels. It added that the ideal combination of soft crude and favourable policy should have supported the OMCs, but the diesel-led surge in refining margins has instead become a spoiler for marketing spreads, making current valuations difficult to justify.