Kotak Equities retains sell rating on HPCL, IOC & BPCL, estimates up to 33% slide

OMCs’ large capex plans on petchem and refining capacity additions remain a concern notwithstanding easing concerns over their debt levels in the near term, Kotak said, noting that petrol, diesel and LPG account for 80% of OMC's sales volume.

The government's decision to slash petrol and diesel prices by Rs 2 per litre, effective from March 15, came after a nearly two-year gap. Moreover, the recent spike in could dent the margins of these OMCs.

In 2024, crude oil prices have shot up by nearly 19% per barrel and US WTI crude could test levels between $88 and $89 in the near term, Anuj Gupta, Head Commodity & Currency, HDFC Securities said. Brent could hit levels of $92-$95, Gupta added.

Energy stocks were at the receiving end of investor's ire today with Nifty Oil & Gas index falling by nearly 2%. In the 15-stock index, 11 were trading in the red around 1:20 pm with the top loser being HPCL. The stock today fell over 3%. IOC and BPCL were also down by 2%.

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HPCL was trading at Rs 461.55 on the NSE around this time and Kotak has estimated its fair value of Rs 320. For IOC, which was trading around Rs 170.40, the estimated target by the brokerage is Rs 115. The fair value of BPCL is Rs 440, and the stock was trading at Rs 600. The downside estimated by Kotak is 32%, 33% and 28% for HPCL, IOC and BPCL, respectively.

Kotak said that in the past few years, OMCs have reported strong GRMs and have benefitted from capacity upgrades, efficiency improvement and better pricing for BS-VI-compliant fuels. Indian refiners have also benefited from the higher share of middle distillates and processing a higher share of discounted Russian crudes, yet reported GRMs have been too high and seem too good to believe, the note said.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)