OMC shares gain up to 6% on lower crude oil prices; should you buy or hold?

While Motilal Oswal Financial Services think the rally in OMC stocks is now entering the last phase, the brokerage firm still see a few positive catalysts.

Share prices of oil marketing companies (OMCs) today: Shares of state-owned oil marketing companies (OMCs) have rallied by up to 6 per cent on the BSE in Monday’s intra-day trade as oil prices slumped by over $2 a barrel after OPEC+ members announced a sharp increase in production. In general, a sharp fall in crude oil prices tends to benefit OMCs such as Hindustan Petroleum Corporation (HPCL), Bharat Petroleum Corporation (BPCL) and Indian Oil Corporation (IOC).

 

The share price of HPCL surged 6 per cent to ₹409, followed by BPCL stock, up by 5 per cent to ₹325.35 and IOC shares by 4 per cent to ₹149.50 on the BSE. In comparison, the BSE Sensex was up 0.52 per cent at 80,920.75.  Read Stock Market LIVE Updates Today Here

 

Fall in crude oil prices

 

Brent crude prices slipped below the $59 per barrel mark on Monday after the commodity lost almost 4.5 per cent in trade. Oil prices fell to a four-year low on accelerated OPEC+ hikes and as US President Donald Trump's tariffs raised concerns about a global slowdown.

 

OPEC+ plans to further accelerate oil output hikes and could unwind its 2.2 million barrels per day of voluntary cuts by the end of October if members do not improve compliance with their production quotas, Reuters reported quoting four sources from the group.

 

The group, which includes the Organization of the Petroleum Exporting Countries and allies such as Russia, agreed to another big output hike for June on Saturday, taking the total it plans to release in April, May and June to nearly 1 million bpd. OPEC+ will maintain the trend and will likely agree in June to release another 411,000 bpd in July, the report suggested.  ALSO READ | Where will JSW Steel stock bottom out? Check details here

 

Brokerage view - Motilal Oswal Financial Services 

 

While Motilal Oswal Financial Services (MOFSL) thinks the rally in OMC stocks is now entering the last phase, the brokerage firm still sees a few positive catalysts, Q1FY26 earnings will likely benefit from lower LPG under recoveries due to an ₹50/cylinder domestic LPG price hike recently. The decline in propane prices as winter demand wanes provides additional upside; Russian crude proportion for OMCs is expected to rise again in Q1FY26, supporting GRMs; marketing business earnings momentum has remained robust.

 

However, the earnings outlook for OMCs is clouded by expected inventory losses in Q1FY26 amid weak crude price environment (vs. inventory gain in Q4FY25), risk of further excise duty hikes for MS/HSD, which can crimp marketing margins; historically OMCs have rarely made over ₹8-10/liter gross marketing margin on MS/HSD for more than two quarters (based on data for last 8 years), BPCL’s FY25 dividend per share of ₹10 (32 per cent payout) was under-whelming, and on the lower side of its historical payout range. With the capex cycle picking up, MOFSL estimate the payout ratio to be only ~30 per cent for both FY26/FY27. BPCL’s FY27 estimated dividend yield is ~2.8 per cent vs. HPCL’s ~4.2 per cent.