Shares of Bharat Petroleum Corporation Ltd (BPCL), Hindustan Petroleum Corporation Ltd (HPCL) and Indian Oil Corporation Ltd (IOC) continued to decline on Monday, despite a recent hike in petrol and diesel prices, as analyst believe the government may require to hike auto fuel prices soon in restrict marketing losses for OMCs. Among the three OMCs, BPCL is seen best-placed to weather the prevailing situation. while HPCL is seen as the most vulnerable.  

OMC stocks fell for the third straight seesion, with BPCL slipping 1.49 per cent to Rs 280.20. HPCL was down 1.97 per cent to Rs 359.20. IOC also declined 2.33 per cent to Rs 131.35.

"OMCs need another Rs 25 per litre price hike to breakeven on fuel marketing margins; LPG losses are mounting too," Nomura said on Monday. The brokerage said the Rs 3 per litre hike in petrol and diesel prices last week was significantly lower than the under recoveries of Rs 28 per litre on blended basis. The brokerage has estimated daily LPG loss of Rs 440 crore for all OMCs at the current run rate. 

"Despite the excise duty cut of Rs 10/litre taken by the government on petrol/diesel on March 27, windfall tax on standalone refiners, and retail price hike of INR3/litre announced on May 15, we estimate OMCs to currently make losses on integrated basis of $4, $8 and $19 for IOCL (Buy) / BPCL (Buy)/ HPCL (Neutral). This is significantly
lower than margins of $12-14 OMCs were making just before the war started," it said.

Elara said HPCL is the most vulnerable OMC because of its higher retail marketing exposure relative to refining capacity. It said June quarter would be challenging for HPCL due to expensive crude, low product prices and high volatility.

"Unless crude corrects, further retail price hikes or additional fiscal support would be required. Within OMCs, IOCL is better placed due to stronger refining integration, while HPCL and BPCL remain more exposed to marketing losses. For the sector, this reinforces our view that OMC stocks will be driven less by reported Q4 numbers and more by the pace of price hikes, crude trajectory and government support," Elara said. 

OMC stocks, target price
Nomura said despite a sharp dip in fuel marketing margins at Rs 25 per litre and highest-
ever LPG loss at Rs 680 per cylinder, OMC stocks are trading at a premium to the valuations seen during the early period of the Russia-Ukraine war. The valuation premium for HPCL is the highest at 77 per cent, despite HPCL being the most impacted from marketing losses. Nomura said IOC may be best placed to weather current situation due to higher refining exposure and upcoming capacities.

Nomura has a 'Buy' and target of Rs 460 on BPCL. HPCL is rated 'Neutral' with a target of Rs 440. Nomura has a target of Rs 190 on IOC, with a 'Buy rating.