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Motilal Oswal Report
Hindustan Petroleum Corporation Ltd., Bharat Petroleum Corporation Ltd., and Indian Oil Corporation Ltd. have corrected 9-18% since mid-February as the gross marketing margins on petrol/diesel have declined to an average of Rs 2.3/Rs 0.2 per lit in April 2024 from an average of Rs 8.0/Rs 3.4 per lit in Q4 FY24.
The current weakness in marketing margins is largely attributable to geopolitical headwinds, ongoing refining capacity maintenance (which has kept diesel gross refining margin high), and elevated freight rates for oil/product transportation.
As such, we expect marketing margins to normalize at higher levels from Q2 FY25 onwards as the impact of these events subsides.
HPCL, BPCL, and IOCL are currently trading at FY26E price/book of 1.1 times, 1.4 times, and 1.2 times versus Oct-23 valuations of 0.8 times, 1.0 times, and 0.7 times, respectively. However, marketing margins were significantly weaker at Rs 2/-7 per lit for motor spirid/high speed diesel in October 2023.
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