Indian Oil To Bharat Petroleum: Why Citi Sees Up To 45% Upside For Oil Stocks

Indian oil marketing companies, including Indian Oil Corp., Bharat Petroleum Corp. and Hindustan Petroleum Corp., are expected to deliver up to 45% returns, according to Citi Research's target prices for these companies.

The brokerage sees the recent correction as an opportunity to buy, as it expects multiple factors to help the company post strong results in the second half of the current fiscal.

In the last 30 days, BPCL has fallen 3.6%, HPCL more than 7%, and Indian Oil by around 5%. Citi noted that these stocks had underperformed upstream peer Oil and Natural Gas Corp. by 10-15% over the last 2-3 months, which it believes offers an attractive buying opportunity.

The brokerage has 'buy' on all three oil marketing firms, including an open positive catalyst watch on HPCL and IOCL. Target price for BPCL is Rs 390, implying a 39.2% upside, HPCL's Rs 450-target price suggests 21.6% upside, while Oil India's stock is seen rising by 44.8% to Rs 190.

Citi said it sees the impact of several recent factors negating each other, while GRMs, marketing margins, and Russian crude discounts are three negative factors in fourth quarter, but these could almost entirely be offset by two positive factors; higher inventory gains and LPG compensation.

On US sanctions on Russia's oil industry, it said, "In a worst case, Citi’s commodities team believes the recent US sanctions could impact 30% of Russia’s crude oil exports.

"Russian crude has constituted 35-40% of Indian refiners’ crude imports over the last year, with an average discount of $3/bbl," it said. "Replacing 30% of these supplies with even $5/bbl more expensive crude would impact GRMs by just $0.5/bbl, all else being equal."

As of 9:34 a.m., all three stocks traded in the negative. BPCL was 0.7% lower, HPCL was down 0.1%, and Indian Oil dropped 0.8% .