February 18, 2024
BPCL Hits 52-Week High, HPCL and IOCL Follow Suit
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BPCL Hits 52-Week High, HPCL and IOCL Follow Suit

BPCL Hits 52-Week High, HPCL and IOCL Follow Suit

BPCL Hits 52-Week High, HPCL and IOCL Follow Suit

Bharat Petroleum Corporation Ltd (BPCL) witnessed a robust surge, with its share price gaining over 4% to reach 52-week highs on Thursday. The positive momentum extended to Hindustan Petroleum Corporation (HPCL) and Indian Oil Corporation (IOCL), both experiencing gains of up to 2.5% and trading near their highs. Analysts maintain a favorable outlook, citing strong earnings prospects for these energy giants.

Analyst Insights: Re-Rating and Strong Earnings Outlook

Morgan Stanley analysts, in a recent report dated February 4th, indicated that BPCL, HPCL, and IOCL are entering a phase of re-rating. This shift is attributed to tight fuel supplies and the increasing availability of challenged crude. The earnings outlook for these companies remains robust, contributing to the positive sentiment among analysts.

Decent Q3 Performance: BPCL’s Strong Refining Margins

The refiners, including BPCL, reported a commendable performance in Q3. BPCL’s gross refining margin (GRM) for Q3 stood at $13.3 per barrel. While the GRM softened from Q3FY23 and Q2FY24 levels, it remained higher than the estimates by Elara Securities. Elara analysts anticipate BPCL’s GRM to stay above mid-cycle levels in CY24 due to tighter refining product supply.

Earnings Upgrade and Target Price Revision: Positive Outlook

Elara analysts raised BPCL’s FY26 Earnings per Share (EPS) estimates by 30%, leading to a target price increase to ₹608 from ₹396. This revision is based on better GRMs at $10.0 per barrel and higher diesel/gasoline margins at ₹3.5/liter, driven by a positive refining supply outlook and favorable crude prices at $80 per barrel.

Market Dynamics and Future Prospects: Jefferies and Morgan Stanley Assessments

Jefferies India Private Ltd, post Q3 results, highlighted more than a 10% earnings upgrade for marketing companies (BPCL, HPCL, IOCL) due to strong marketing margins. Meanwhile, Morgan Stanley anticipates a well-supplied oil market, hardware upgrades, and a ‘golden age’ for fuel refiners globally. They foresee potential upside from cross holdings, contributing to the next phase of earnings upgrades and multiples reaching levels seen between 2014-2017. HPCL and IOCL, having traded at a discount to BPCL for most of the past decade, are now catching up, backed by multiple triggers and clarity on earnings delivery by management.

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