HPCL: BPCL’s reported Gross Refining Margin (GRM) exceeded Kotak’s estimate, but its implied marketing margin fell short of expectations. On the other hand, HPCL’s Q3 results fell below Kotak’s EBITDA estimate, primarily due to a marketing margin lower than anticipated.
According to Kotak Institutional Equities, BPCL, a Nifty constituent, and HPCL, a non-Nifty component with ONGC holding a stake, are projected to account for 31% of the increased Nifty profits in FY24. They further noted that oil marketing companies (OMCs) might dampen overall profits as the situation normalizes in FY25.
Kotak Institutional Equities anticipates OMCs’ refining and marketing margins for FY2024-26 to exceed historical levels significantly. They noted that IOC surpassed its EBITDA estimate, driven by better-than-expected gross refining margin (GRM) and higher marketing margin. However, BPCL’s reported GRM exceeded Kotak’s estimate, while its implied marketing margin fell short. Despite an operational beat, higher employee benefit expenses offset the performance, resulting in EBITDA in line with expectations, according to the brokerage. HPCL’s Q3 results fell short of Kotak’s EBITDA estimate due to a lower-than-expected marketing margin, particularly due to a suppressed margin on diesel.
“We anticipate a 23% increase in net profits for the oil, gas, and consumable fuels sector within the Nifty-50 index in FY2024. This growth will primarily be driven by elevated profits from BPCL and HPCL (wherein ONGC holds a 51% stake), owing to our projection of higher marketing margins on automobile fuels compared to the notably low margins observed in FY2023. However, this upward trend may be partly offset by reduced refining margins and increased profits for RIL stemming from its retailing and telecom segments, which will help counterbalance lower profits for Coal India and ONGC due to decreased gas prices.”
HPCL, and BPCL to make up 31% of FY24 Nifty profit growth; OMCs could hinder FY25 figures.
Kotak mentioned that OMCs like HPCL and IOC are also expected to experience a significant profit recovery in FY2024, despite not being part of the Nifty Index. In the December quarter, the profitability of OMCs surged by 4.6 times to approximately Rs 12,000 crore in Q3 from Rs 2,600 crore in the corresponding quarter of the previous year, primarily due to robust marketing margins.
According to HPCL’s management, they anticipate a recovery in Q4FY24. They expect refinery throughput to exceed 22 million metric tonnes per annum (mmtpa) in FY24, while marketing sales volume is projected to reach around 44 mmtpa. Additionally, the management indicated that petrochemical production is set to commence in 2025.
BPCL’s management provided guidance suggesting that the growth in MS consumption is expected to be 5% over the next five years, while diesel growth is projected to be in the range of 1.5-2%, despite the rising adoption of electric vehicles (EVs). They also mentioned that the force majeure in Mozambique is anticipated to be lifted by June or July 2024.
