 "Diesel relief, LPG boost: Motilal Oswal pegs 31% upside for HPCL stock")
Hindustan Petroleum Corporation Limited (HPCL) is back in favour with the brokerage community, with Motilal Oswal reiterating its ‘Buy’ rating on the oil marketing company and pegging a 31 per cent upside to its revised target price of ₹590.
The call comes even as the HPCL stock has slipped around 8 per cent from its recent peak, after a sharp run-up of about 20 per cent over the past three months. The correction, the brokerage said, is largely driven by a steep fall in diesel gross marketing margins as cracks spiked to multi-quarter highs.
Diesel cracks cool after spike; marketing margins set to recover
Diesel cracks had soared to nearly $30 a barrel compared with their long-term average of $16, compressing HPCL’s diesel marketing margin by 18 per cent quarter-on-quarter (Q-o-Q) and 46 per cent year-on-year (Y-o-Y) in Q2FY26. In an extreme case where diesel cracks hold at $30 a barrel, Brent averages $63 a barrel, and the rupee stabilises around 89.4 per dollar, Motilal Oswal estimates a 70 per cent slump in diesel GMM versus Q2 levels. But the risk appears to be ebbing: cracks have already cooled to about $22 a barrel, offering early signs of relief for downstream players.
Despite the near-term volatility, HPCL’s valuations remain reasonable, the brokerage noted. The stock trades at 1.4 times one-year forward price-to-book, slightly above its long-term average of 1.2 times. Motilal Oswal expects the stock to continue doing well over the coming quarters, supported by improving marketing economics and tailwinds from multiple structural factors. ALSO READ | Auto sector rides on GST 2.0, festive demand; Nirmal Bang names top picks
LPG subsidy, easing under-recoveries to boost earnings
A key earnings catalyst will be the ₹660 crore per month LPG subsidy compensation the company is set to receive from November 2025 to October 2026. This, combined with a steep drop in LPG under-recoveries to ₹30-40 per cylinder in Q3FY26 to date, versus roughly ₹135 per cylinder in the first half, should materially improve blended marketing margins. The brokerage also maintains a constructive outlook on auto-fuel profitability, aided by its view of subdued crude prices at around $60 per barrel in FY27-28.
On the refining front, HPCL is positioned to benefit in the near to mid-term from elevated product cracks. Diesel and gasoline cracks averaged $27 and $16 a barrel, respectively, in November 2025, well above long-term trends. These elevated spreads reflect a confluence of global supply constraints, including widespread refinery maintenance, unplanned outages, nearly 0.8 million barrels per day of product loss from refinery closures in the Atlantic Basin this year, and Ukrainian strikes that have temporarily knocked out around 1.1 mb/d of Russian refining capacity. ALSO READ | Gold loans, fee income to power Capri Global; JM Financial starts coverage
Elevated global product cracks lift refining outlook
According to S&P Global, global refinery downtime peaked at 9.4 mb/d in October 2025, tightening product availability even further. Russia’s ongoing diesel export ban through 2025 has only amplified the crunch.
Motilal Oswal expects these strong cracks to persist in the near term, especially with EU sanctions on Russian refined products kicking in from January 2026. However, as global maintenance phases end, new capacity comes onstream, and any potential diplomatic resolution in the Russia-Ukraine conflict allows Russian diesel back into the market, cracks are likely to normalise.
Over FY27-28, the brokerage maintains a neutral stance on the refining cycle as expected net capacity additions of about 1.35 mb/d between CY25-27 broadly match estimated refined-product demand growth of 1.32 mb/d. Still, any delays in new projects or unexpected outages could keep margins firmer for longer.
Marketing, however, remains Motilal Oswal’s preferred sub-segment. A weak crude price outlook, expectations of limited downside in retail fuel prices, and a healthy 4 per cent compound annual growth rate (CAGR) in marketing volumes are projected to drive strong profitability. The anticipated surplus in global crude supply should also keep crude and propane prices benign, improving margin visibility.
HPCL stands out among OMCs due to its higher leverage to the marketing segment, a tapering capex cycle that boosts dividend yield, and the start-up of multiple mega-projects over the next 12 months. The company trades at 1.3x FY27E P/B and is expected to deliver robust returns on equity of 29.3 per cent in FY26 and 19.9 per cent in FY27, along with a 3.8 per cent dividend yield.
With conservative assumptions of $6.5/bbl refining GRM and ₹3.5/litre auto-fuel margins, and no major upside factored in from the bottom-upgrade unit or Project Samriddhi, Motilal Oswal sees considerable room for re-rating. The brokerage’s target price signals a 31 per cent upside, reaffirming HPCL as its top pick among the OMC pack.
Disclaimer: The stock target and outlook has been suggested by Motilal Oswal. Views expressed are their own.