Indian Oil, BPCL, HPCL Richly Valued: Prabhudas Lilladher

Prabhudas Lilladher Report

Oil marketing companies like Indian Oil Corporation Ltd., Bharat Petroleum Corporation Ltd. and Hindustan Petroleum Corporation Ltd. are likely to witness a strong Q3 performance on back of improvement in gross marketing margins on petrol and diesel.

Singapore gross refining margin for Q3 to-date stands at $4.5/barrel of oil, while gross marketing margins on petrol and diesel are at Rs 8.2/(-0.6)/litre.

Indian Oil/BPCL/HPCL have historically traded at long term price/book value of 1/1.3/0.8 times respectively (we exclude the period between 2014-18, during which the OMCs enjoyed higher valuations due to twin benefits of deregulation and benign oil prices) and are currently trading at 0.9/1.3/1.1 times FY24 P/BV.

We downgrade our rating from ‘Hold’ to ‘Reduce’ on Indian OIL with a target price of Rs 94 based on 0.7 times FY26 P/BV.

We downgrade our rating on BPCL from ‘Hold’ to ‘Reduce’ with target price of Rs 365 based on one time FY26 P/BV. Similarly, on HPCL we downgrade our rating from ‘Hold’ to ‘Sell’ with a target price of Rs 272 based on 0.7 times FY26 P/BV.

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