OMCs in focus: BPCL hits record high

IOC rallied 6% to Rs 375, while BPCL and HPCL gained 4% each at Rs 801 and Rs 655 respectively

Shares of public sector oil marketing companies (OMCs) such as Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) have rallied by up to 6% on the Bombay Stock Exchange (BSE).

BPCL surged 4% at Rs 801, also its record high on the BSE, during intra-day trade. IOC rallied 6% to Rs 375, while HPCL gained 4% to Rs 655.

According to ICRA, the falling under-recoveries are leading to decrease in borrowing levels and interest burden thereby resulting in improvement in profitability and liquidity position of the OMCs.

Driven by robust demand growth of domestic LPG, the under-recovery of LPG decreased by 14% (yoy) in Q3 FY15 due to lower crude oil and LPG prices, said ICRA Research in March 2015 report.

The LPG subsidies will form a major chunk of total gross-under recoveries (GURs) of OMCs from FY15 onwards, added the report.

Harshad Borawake analyst at Motilal Oswal Securities in recent research report said: "The ongoing reforms have the potential to transform OMCs to a structural investment play in our view led by higher earnings predictability, increase in profitability leading to higher return of equities (RoE’s)."