HPCL, BPCL, and IOCL Shares Skyrocket by Up to 38% YTD: Should You Buy, Sell, or Hold?

Shares of Hindustan Petroleum Corporation Ltd (HPCL), Bharat Petroleum Corporation Ltd (BPCL), and Indian Oil Corporation Ltd (IOCL) have delivered returns of 28-38% year-to-date, despite challenges like rising crude prices, fluctuating refining margins, and concerns about marketing margins ahead of the 2024 Lok Sabha elections. Although these stocks dipped in March, they have rebounded 9-20% since then.

Crude Prices Stable:

One positive development is that crude oil prices, which surged past $90 a barrel in April, have now corrected to around $81 a barrel. This alleviates concerns about marketing margins being impacted by higher crude prices. Since these oil marketing companies (OMCs) did not change retail prices during the crude price rise, they can now recover any losses incurred.

Analysts at Motilal Oswal Financial Services (MOFSL) expect oil prices to remain stable, stating, “We see OMCs as the best way to play a range-bound crude oil price environment with rising downside risks.”

Strong Balance Sheets:

HPCL, BPCL, and IOCL have strengthened their balance sheets. MOFSL analysts estimate the consolidated net debt to equity ratio for FY26 to be 1.0 for HPCL, 0.4 for BPCL, and 0.6 for IOCL.

Q4 Performance:

The fourth-quarter results for these OMCs were mixed. IOCL missed analysts’ EBITDA estimates due to lower-than-expected Gross Refining Margins (GRM) and a weak petrochemical division performance. BPCL’s GRM also fell short of estimates, but its marketing margin exceeded expectations. However, its overall EBITDA was below estimates because of weaker refining performance and an impairment charge. HPCL’s Q4 earnings were slightly better than expected, thanks to higher marketing margins, although its refining performance was below expectations due to lower GRM.

Conclusion:

Considering the current stability in crude prices and strong balance sheets, HPCL, BPCL, and IOCL are positioned well. However, the mixed Q4 performance suggests caution. Investors should consider these factors before making any buy, sell, or hold decisions.