OMC Stocks Reach 52-Week Highs
Shares of Indian Oil Corporation (IOC) soared over nine percent, hitting a fresh 52-week high of ₹165.55 apiece on the Bombay Stock Exchange (BSE). Hindustan Petroleum Corporation Limited (HPCL) also experienced a significant surge, with shares locked at a five percent upper circuit to hit a 52-week high of ₹500.75 apiece on the BSE. Similarly, Bharat Petroleum Corporation Limited (BPCL) saw its shares rise by nine percent, reaching a 52-week high of ₹563.30 apiece on the BSE. BPCL was also one of the top gainers on Nifty 50.
Q3FY24 Results and Profitability of OMCs
During the October-December quarter of fiscal 2023-24, Indian Oil Corporation (IOC) saw its net profit rise multifold year-on-year to ₹8,063 crore. However, the state-owned fuel retailer’s net profit dropped 38 percent sequentially in the December quarter. Bharat Petroleum Corporation Limited (BPCL) reported a net profit surge of 82 percent to ₹3,181 crore, while Hindustan Petroleum Corporation Limited (HPCL) experienced a 90 percent drop in net profit sequentially but tripled year-on-year to ₹529 crore.
Interim Budget 2024 and its Impact on OMCs
The Interim Budget 2024 presented by Finance Minister Nirmala Sitharaman last year announced an equity infusion of ₹30,000 crore in IOC, BPCL, and HPCL to support their energy transition plans. The budget also proposed ₹5,000 crore for buying crude oil to fill strategic underground storages in Karnataka and Andhra Pradesh. However, the recent Interim Budget did not allocate any funds for equity infusion in the current fiscal year, deferring the ₹15,000 crore infusion to the 2024-25 fiscal year.
Factors Driving the Surge in OMC Stocks
The rally in OMC stocks can be attributed to stable prices of international crude oil, as investors expect limited effects of supply cuts announced by OPEC+. Domestic brokerage firms have also highlighted that OMCs will find support with global crude oil prices staying below the $80 per barrel-mark. OPEC+ has pledged additional output curbs for the first quarter as global demand growth slows and rival supplies continue to climb. However, oil prices dipped on Friday due to strong US jobs data and concerns about China’s economy.
OMCs’ Profitability and Recovery from Losses
The decision to defer the infusion of funds may be linked to the improved profitability of the three OMCs in the current fiscal year, which has partly covered for the losses they incurred in the previous fiscal year. Despite a spike in crude oil prices, the freeze in retail selling prices extended into its 21st month, resulting in decent profits for the OMCs.
Analyst comment
Positive news:
– Indian oil marketing companies (OMCs) have seen a surge in their stock prices.
– Shares of Indian Oil Corporation (IOC), Hindustan Petroleum Corporation Limited (HPCL), and Bharat Petroleum Corporation Limited (BPCL) have reached 52-week highs.
– OMCs’ profitability has improved, with IOC, BPCL, and HPCL reporting higher net profits.
Neutral news:
– The government has deferred the ₹15,000 crore infusion in OMCs to the next financial year.
– The Interim Budget did not allocate any funds for equity infusion in the current fiscal year.
Analyst’s view:
The market for Indian oil marketing companies is expected to continue to perform well due to the surge in stock prices, increased profitability, and ongoing support from stable international crude oil prices. However, the deferral of funds may impact their plans for energy transition projects in the short term.
