HPCL, BPCL, IOCL rally up to 4%; why OMC shares are in demand today?

Analysts believe that OMCs now have a large margin of safety owing to low oil price and a large capex plan which gives them confidence that a normative level of earnings will still be maintained.

HPCL, BPCL, IOCL share price today

 

Shares of state-owned oil marketing companies (OMCs) were in demand with Hindustan Petroleum Corporation (HPCL), Bharat Petroleum Corporation (BPCL) and Indian Oil Corporation (IOCL) rallying up to 4 per cent on the BSE in Monday’s intra-day trade on the back of heavy volumes.

 

Among individual stocks, BPCL (₹337.95) and HPCL (₹440.5) rallied 4 per cent each in intra-day deal, while IOCL gained 3 per cent at ₹149.60 in intra-day trade. In comparison, the BSE Sensex was up 0.46 per cent at 80,797 at 10:28 AM.

 

Why are OMC shares in demand today?

 

Lower oil price is supportive of strong auto fuel marketing margins and this augurs well for the FY26 earnings. In addition, global LPG prices have also decreased, leading to around 30-40 per cent reduction in LPG losses per cylinder currently versus Q1FY26. This will result in a lower under-recovery for FY26. While more details are awaited on the pay-out mechanism of ₹30,000 crore provisioned by the government towards compensating OMCs for LPG losses (yet to account), these trends present upside risks to earnings forecasts, according to HSBC Global Investment Research.

 

The miss on earnings in Q1 for the OMCs was primarily due to higher-than-estimated inventory losses as OMCs preferred to carry more inventories given geopolitical tensions. The brokerage firm increased marketing margin estimates given low crude oil prices leading to higher earnings. Analysts believe that OMCs now have a large margin of safety owing to low oil price and a large capex plan which gives them confidence that a normative level of earnings (assumed) will still be maintained.

 

HSBC Global Investment Research raised its target prices based on FY27e book values as also roll forward valuation period to September'25 from June'25, which results in HPCL target price increasing to ₹520 (from ₹490) and IOCL target price increasing to ₹190 from ₹180. 

 

According to Emkay Global Financial Services, the July to September quarter (Q2FY26) outlook for OMCs is steady despite adverse sentiments from the volatile Russian scenario. Q1 primarily saw some miss in core gross refining margins (GRMs), along with higher-than-expected inventory losses. 

 

However, the refining side currently is sequentially better, with diesel-kerosene cracks strengthening and more than offsetting the decline in petrol. The impact on overall GRMs from the Russian crude discount should not be very significant, compared with Q1. 

 

Q2 earnings of OMCs would be lower from Q1 levels, although remain in line with our expectation. Modalities of the ₹30,000 crore LPG subsidy are awaited, with the Ministry of Petroleum and Natural Gas (MoPNG) stating a 12-tranche payout; with the Cabinet’s approval, the brokerage firm said they do not see any risk; also, working capital of OMCs is comfortable currently. 

 

While there can be concerns around retail price cuts in H2FY26, the brokerage firm note that the only state election is that of Bihar’s in November, whereas major states like West Bengal and Tamil Nadu would see elections by May-26.  Analysts retain Buy on HPCL, BPCL, and IOCL, with target price of ₹500, ₹400, and ₹170, respectively.

 

Meanwhile, IOCL’s refining capacity is set to expand from 81mmt to 98mmt by CY26 end, with ₹90,000 crore capex currently under execution.

 

IOCL holds around 45 per cent share in India’s LPG market, delivering 3 million cylinders daily across 150 million connections. With penetration now at 100 per cent under Pradhan Mantri Ujjwala Yojana (PMUY), growth will hinge on higher refill frequency per user (4.5x to 8x p.a.) and rising industrial demand, according to Motilal Oswal Financial Services.

 

The brokerage firm recently downgraded IOCL to Neutral as earnings remain highly volatile due to large refining inventory swings and limited visibility. The petrochemical segment continues to post losses, and spreads are likely to remain muted given the significant upcoming capacity additions in China.