HPCL, BPCL share prices rise up to 4.4% to 1-year high, gain 60% ytd; Should you Hold or book profits?

Stock market Today: Hindustan Petroleum Corporation Ltd, Bharat Petroleum Corporation Ltd share prices gained up to 4.4% on Monday during the intraday trades, to scale 1-year high. Even Indian Oil Corporation Ltd share prices gained around 2% supporting gains of up to 1% for the Nifty Oil & Gas index on a day when benchmark Nifty 50 index gained up to 0.3%.

Notably Hindustan Petroleum Corporation and Bharat Petroleum Corporation share prices have gained up to 62% year to day.

Soft Crude oil prices support the outlook

The Brent Crude prices that has risen beyond $90 a barrel at April start, are now down to around $75 a barrel levels. This has eased concerns on the marketing margin outlook for Oil marketing companies as Hindustan Petroleum Corporation Ltd, Bharat Petroleum Corporation and even Indian Oil Corporation.

The marketing margins are the margins the Oil Marketing companies earn from selling auto fuels at their retail outlets.

Analysts at Yes Securities expect a range of $72-78 a barrel for next few months. The global crude supply is still stronger, with OPEC supply increasing while demand is expected to fall on key economy’s slowdown as per key global agencies.

Refining Margins also expected to remain supportive

Gross Refining margins or margins that Oil Marketing companies earn on converting Crude oil to auto fuels also are expected tr remain supportive. Analysts expect volatility in GRM's to reduce moving forward and there are limited new supplies that are expected to come onstream now.

The average annual net capacity additions of 470,000 barrels per day represent a notable decrease (40%) compared to the 780,000 barrels per day average observed from 2010 to 2019, highlight analysts at Motilal Oswal Financial Services.

The global refinery capacity grew by 1.5 million barrels per day and throughput by 1.6 million barrels per day in 2023 over 2022 and given higher demand growth globally, analysts expect the key refining product cracks to remain strong.

It is pertinent to note that Indian refiners would continue report a premium to the benchmark due to their higher share of the higher-crack product, diesel, said analysts at Yes Securities.

Outlook-

The Gross Refining Margins (GRMs) and gross marketing margins are currently above normal and would result in better profits and support balance sheet of Indian refiners and OMCs – leading to positive stance on the sector as per Yes Securities

HPCL remains our preferred pick of MOFSL among the three OMCs, though they have Buy ratings on all three

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions

Outlook