INSUBCONTINENT EXCLUSIVE:
rating.While Nomura maintained buy ratings on Hindustan Petroleum Corporation Ltd (HPCL) and Indian Oil Corporation Ltd (IOCL) as well, it
said BPCL offers the best combination of operational strength and valuation comfort
per barrel in FY26 from $6.8 in FY25
The company is also expected to benefit the most from recovering margins, given its diesel-heavy product slate and the continuing, albeit
narrowing, advantage from discounted Russian crude.In contrast, IOCL and HPCL face greater exposure to the refining cycle through ongoing or
upcoming capacity additions, some of which may struggle to generate sufficient returns in the current macro environment.Marketing margins
remain elevated but vulnerableAll three OMCs are currently benefiting from historically high marketing margins, with blended auto fuel
margins at about Rs 11 per litre in 1QFY26, compared to a five-year average of Rs 3.2
These strong spreads have persisted despite a Rs 2 per litre excise duty hike by the government in April.However, Nomura expects margins to
the government may be looking to readjust the margins earned by OMCs either via excise duty hikes or some cut in fuel prices, or a
Mumbai, alongside petchem ventures in Kochi and Bina
The company is adding about 17mtpa of refining capacity, 24% of its current base, but Nomura expects low free cash flow generation over
But Nomura warned this leaves HPCL more exposed to any drop in marketing margins
It also flagged risks related to the Barmer integrated refinery and petrochemical complex, which is set to begin operations in 2QFY26 after
significant delays and cost overruns
The stock trades at 1.5x one-year forward price-to-book, about 15% discount to its historical average, and at 9.3x forward earnings, in line
with its long-term average
The target price of Rs 435 is based on a sum-of-the-parts valuation, ascribing a 6.5x multiple to its FY27 EBITDA for both refining and
marketing businesses.Key risks for BPCL include a sharper-than-expected fall in marketing margins, weaker GRMs, and execution challenges in
Market Trading Guide: BPCL, TFCI among 7 stock ideas for up to 18% returns in near term(Disclaimer: Recommendations, suggestions, views and
opinions given by the experts are their own
These do not represent the views of TheIndianSubcontinent)
