Hindustan Petroleum Is Morgan Stanley's Top Pick Among Oil Retailers — Here's Why
The peak of its capital expenditure is over and HPCL is operating in a new investment cycle, Morgan Stanley said.
Hindustan Petroleum Corp. is Morgan Stanley's top preference among oil marketing companies, amid rising oil supply.
"HPCL is a levered play from rising global oil supply and benefits from improved refinery hardware," the report stated. The brokerage predicts HPCL's Ebitda to go up to $4.5 billion in fiscal 2028.
Additionally, the peak of its capital expenditure is over and HPCL is operating in a new investment cycle, the report mentioned. An investment cycle is a period where companies make capital expenditures, dispose fixed assets and modify long term investments.
The research firm expects the rating to change as the quality of the earnings refine "against a backdrop of well-supplied oil markets, which should lead to bigger discounts in crude sourcing in 2025 and also higher - 30% above mid-cycle-integrated margins".
It maintained a bullish stance on all the three major OMCs — IOLC, BPCL, and HPCL — on account of expansion in the natural gas value chain and other factors like "global tailwinds from oversupplied oil markets in 2025; gas taking market share from diesel in China; domestic tailwinds of strong fuel demand, improving FCF, and stable fuel prices —all point to the next leg of outperformance", as per the report.
The firm also predicts a 4% compound growth rate for oil consumption in India till fiscal 2028.
HPCL, IOCL, and BPCL were all trading in the red on Tuesday.
