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Prabhudas Lilladher Report
Oil marketing companies reported a super normal profit of Rs 305 billion in Q1 FY24, but failed to cheer up investors as the fate of OMCs remains tied to uncertain oil prices and inability to pass on prices to end consumers amid upcoming elections.
Due to rise in benchmark petrol and diesel prices, gross marketing margins of petrol and diesel stand at Rs 5.5/-0.7/litre in August 2023 till date compared with Rs 10/12.7/litre in Q1 FY24 and Rs 10.1/7.4/litre in July 2023.
A rise of $1/barrel of oil affects gross marketing margins by ~50 p/lit. Crack spreads of petrol and diesel, nonetheless have been rising from $12.3/14/ bbl in Q1 FY24 to $12.5/20.3/bbl in July-23 and $13.4/30.2/bbl in August 2023 till date, which would benefit their refining segment.
Hindustan Petroleum Corporation Ltd., Bharat Petroleum Corporation Ltd. and Indian Oil Corporation Ltd. are trading at 0.9/1.2/0.8 times FY24 price-to-book-value versus 10-year average of 0.9/1.5/0.7 times.
We do not see any respite in the companies due to above mentioned concerns over the near term. Accordingly, we recommend ‘Hold' rating on all the stocks.
Given highest marketing leverage, we value HPCL at 0.8 times FY25 PBV with target price of Rs 263.
BPCL has witnessed de-rating due to continued delays in its upstream portfolio, so we value it at 1.1 times FY25 PBV with a target price of Rs 353. We value Indian Oil at 0.8 times FY25 PBV and target price of Rs 97.
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