HPCL 'Key' Pick, Emkay Says, As Analysts See OMCs In 'Sweet Spot'

Oil marketing companies may be in a sweet spot despite Monday’s excise duty hike, with brokerages agreeing that strong margins and soft crude prices make this a favourable setup. Both Morgan Stanley and Emkay Global said the move strengthens earnings visibility for fuel retailers without denting demand, as pump prices remain unchanged.

Morgan Stanley described the excise duty hike and the latest increase in cooking gas prices as bullish for oil marketing companies, which it said are among the best-positioned globally in a well-supplied oil market. Emkay said OMCs are in a “sweet spot,” with current marketing margins running well above historical norms.

The government raised excise duty on petrol and diesel by Rs 2 per litre each, as per a gazette notification issued Monday. The hike came into effect from Tuesday. Despite the increase, the Ministry of Petroleum and Natural Gas said retail fuel prices will remain unchanged. “Public sector oil marketing companies have informed us that there will be no increase in retail prices of petrol and diesel, subsequent to the increase effected in excise duty rates today,” the ministry said in a post on social media platform X.

Morgan Stanley said India’s cooking gas price hike and excise duty increase on petrol and diesel are positive for OMCs, which are among the best positioned globally in a well-supplied oil market. The brokerage said the move helps maintain retail price stability while easing the burden of past under-recoveries. It retains an ‘overweight’ rating on Hindustan Petroleum Corp. Ltd., calling it a 'key' pick.

Emkay said that with Brent crude trading around $65 per barrel, OMCs are comfortably absorbing the excise hike. It estimates current blended gross marketing margins at Rs 15–17 per litre — significantly above the normative Rs 4–5 per litre — translating into over Rs 1 trillion in over-recoveries for the fiscal year ending March 2026. This would more than offset projected LPG under-recoveries of under Rs 400 billion, the brokerage added.

Emkay reiterated a ‘buy’ rating on Hindustan Petroleum Corp. Ltd., Bharat Petroleum Corp. Ltd. and Indian Oil Corp. Ltd., with target prices of Rs 450, Rs 375 and Rs 160 apiece, respectively. It also prefers the stocks in the mentioned order.

The brokerage said marketing margin comfort could extend up to Brent levels of $75 per barrel, beyond which earnings could start seeing pressure. It also flagged potential upside for refining margins from lower official selling prices by Middle Eastern exporters and the improving economics of Russian crude.

On GAIL (India) Ltd., Emkay expects a residual tariff hike of 16–17% in the current quarter. However, it cautioned that the company’s petrochemicals and LPG businesses could face pressure from weaker crude prices.

For city gas distribution players, the brokerage said the move is positive, as compressed natural gas economics remain protected. Among listed CGDs, it prefers Mahanagar Gas Ltd. over Indraprastha Gas Ltd., citing stronger margin potential.