OMCs under pressure; Indian Oil, BPCL, HPCL down upto 4%

In past three months, IOC, BPCL and HPCL have underperformed the market by falling 10% to 19% against a marginal 0.22% decline in the Sensex

Shares of oil marketing companies (OMCs) were under pressure falling by upto 4% on the BSE in intra-day trade. Indian Oil Corporation (IOCL), Hindustan Oil Corporation (HPCL) and Bharat Petroleum Corporation (BPCL) were trading lower in the range of 3% to 4% on the BSE. On comparison, the S&P BSE Sensex was down 0.88% at 33,387 points at 01:47 pm.

IOCL was down 4% to Rs 185, extending its Thursday’s 3% decline after the stock turned ex-bonus in the ratio of 1:1 (i.e. one bonus share for every one share held).

In past three months, IOC, BPCL and HPCL have underperformed the market by falling 10% to 19% against a marginal 0.22% decline in the benchmark index.

OMCs have largely underperformed the broader markets over the past 12 months (Nifty+12.4% vs. BPCL and HPCL up 4% each, while IOCL down 1.2%) with a significant portion of the above underperformance coming in over the past six months (Jul 2017-Mar 2018). The past six months, incidentally, was also the period when crude oil prices started firming up and stood ~24% higher than in 1HFY18.

Besides firmer crude prices, OMCs also faced slower consumption growth post Goods and Services Tax (GST) rollout and limited pricing freedom in the wake of the Gujarat elections, according to analysts at Antique Stock Broking.

However, now, even as consumption growth is back on track with an average of ~8% YoY over Jan-Feb 2018 (vs. 4% YoY in 9MFY18) and marketing margins have staged a healthy recovery to Rs 3.5/ltr (petrol and diesel), stock valuation remains inexpensive and attractive, the brokerage firm said in sector update.