HPCL, BPCL, IOC shares extend gains after best week in multiple years
IOC has turned out to be the outperformer, with shares rising 17% in the first few days of February, extending gains from the 13% surge it saw in January.
Shares of Indian Oil Corporation are up 7% on Monday and have gained in seven out of the last eight trading sessions. On similar lines, shares of its peers, HPCL and BPCL are also trading with gains of over 4% each at the start of the week.
After gaining 16% in January, shares of HPCL are up another 8% this month, while those of BPCL are up 14% this month already, after gaining 11.5% this month. IOC has turned out to be the outperformer, with shares rising 17% in the first few days of February, extending gains from the 13% surge it saw in January.
HPCL's shares had gained 13% last week, marking its best week since October 2018. BPCL shares rose 17.7% last week, which was the best week since July 2020. Indian Oil also had its best week since October 2018.
At current prices, shares of HPCL are trading at 8 times financial year 2025 Earnings per Share (EPS). Shares of BPCL are trading at 8.5 times, while those of Indian Oil are trading at 8.6 times. The stocks are trading at a 11% to 15% premium to their long-term average.
HPCL's management had mentioned earlier that it plans to raise its refinery capacity by 7 MTPA for its Vizag refinery and is planning a capex worth ₹75,000 crore over the next five years. It has also formed a wholly-owned subsidiary for the green business as well. For the lubricants business, the company is either looking to list it separately or bring in a strategic partner.
CNBC-TV18 also reported last week that the recent surge in HPCL has turned ONGC's investment in the company profitable after six years.
The management of BPCL is also planning a capex worth ₹1.5 lakh crore over the next five years. Additionally, the company has also signed an MoU with a subsidiary of Tata Motors to set up EV charging stations on the highway corridors.
Indian Oil Corporation has capex for 25 MTPA capacity at Panipat, 18 MTPA for Gujarat and 9 MTPA capacity for its refinery at Barauni.
Brokerage firm Morgan Stanley wrote in a note that India's downstream oil refiners are in a multi-year re-rating and earnings upgrade cycle and remain "underappreciated" even after the sector's recent outperformance.
The brokerage said that Reliance and HPCL, BPCL, Indian Oil are in the early days of this re-rating given the tight fuel supplies and rising availability of challenging crude.
HPCL has re-rated, according to Morgan Stanley and is closing in on BPCL. Indian Oil will follow suit, as per Morgan Stanley.
JPMorgan believes that in a status quo scenario, the financial year 2025 projections might still be upgraded for these three companies. In terms of preference, JPMorgan prefers BPCL over HPCL.
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