BPCL To IOC: Oil Firms Shares Rally As Goldman Sachs Expects Operational Recovery From FY26

Shares of oil marketing companies rallied on Wednesday as Goldman Sachs upped the stocks' ratings, citing improving financials.

Oil marketing companies' shares were down 25% on average from the peak in early 2024, the brokerage said, adding it continues to see earnings risk, driven by lower crude discounts and the LPG under-recovery.

"However, these concerns appear largely priced in," Goldman Sachs said. The fiscal 2026-27 set up is improving for OMCs, given crude oil price upside remains capped, the brokerage said.

It expects a free cash flow recovery in the next fiscal — a key driver of OMCs’ historical absolute stock price performance, it said. The risk-reward implied by our valuation framework appears more attractive, the brokerage said in a note.

They assume normalised marketing margins and normalised crude discounts in their base case. The bull case assumes returns of higher Russia crude discounts and LPG subsidy, while Goldman Sachs' bear case assumes the lower end of historical marketing and refining margins.

Indian Oil Corp.

• Rating upgraded to 'neutral' from 'sell', and target price raised to Rs 110 apiece from earlier Rs 105 per share.

• The stock has underperformed that of other oil marketing companies.

• Risk-reward appears more balanced.

Bharat Petroleum Corp.

• Rating upgraded to 'buy' from 'neutral', and target price of Rs 360 apiece retained.

• Valuations below the historical mean.

• With the upcoming capital expenditure cycle, expects 10% free cash flow yield into the fiscal year ending March 2026.

• Rating upgraded to 'buy' from 'neutral' and target price raised to Rs 400 apiece from earlier Rs 370.

• Company is moving closer to capital expenditure completion and free cash flow inflection.

• Expects 40% Ebitda compound annual growth rate over the fiscal years through March 2027.

Shares of HPCL and BPCL led the gain with more than 3% surge during the early session. Nifty Oil and Gas index was among the top sectoral gainers and was up 1.58% as of 9:40 a.m.

Mangalore Refinery and Petrochemicals Ltd. rose over 3%, while Oil India and ONGC rallied over 2.5% on Wednesday, compared to a 0.18% gain in the benchmark NSE Nifty 50.