Moneycontrol Bureau
Shares of oil marketing companies are extending the spectacular rally seen yesterday as crude prices are still at 14-month low. HPCL, BPCL and IOC are up 3-4 percent each intraday on Tuesday. Goldman Sachs bullishness on the sector is also adding to the euphoria.
The brokerage sees almost no losses on diesel after September price hike and expects greatest upside for HPCL and BPCL with improving marketing margins. As losses on retail diesel sales are now down to Rs 0.8 per litre, Goldman Sachs estimates it to fall to Rs 0.3 per litre after the price hike on September assuming oil prices and diesel cracks remain around current levels.
“This implies we could effectively be done with the monthly cycle of diesel price increases in next two months and diesel will be market-priced,” it says in a report.
Brent crude edged up towards USD 102 a barrel, but stayed near a 14-month low reached in the previous session on weak demand and easing concerns over risks to supply. Investors are worried over conflict in Iraq eased, and as higher Libyan oil output added to already ample supplies.
According to the brokerage, any policy move towards actual de-regulation of diesel prices, with OMCs having freedom to change retail prices in line with international oil prices and USD/INR, is a key catalyst for OMCs.
Stock specifically, it prefers BPCL and HPCL with a significant share price upside of 102 percent -263 percent for OMCs as divestment plays under blue sky scenario. It’s 12-month target on HPCL is Rs 538 (blue sky target at Rs 1505/share), IOC at Rs 419 (blue sky target at Rs 906/share) and BPCL at Rs 701 ( blue sky target at Rs 1236/share).
However, it also adds, “ Based on our sensitivity analysis on changes in marketing margins for OMCs, we see 96 percent and 58 percent upside risk to our FY16E EPS for HPCL and BPCL respectively, iIf gas oil marketing margins in India converge to that in China.”
At 11:13 hrs HPCL was quoting at Rs 458.60, up 4.10 percent, BPCL was at Rs 671.95, up 3.60 percent and IOC at Rs 361.90, up 2.65 percent on the BSE.
Posted by Nasrin Sultana
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