Global brokerage firm HSBC has issued ‘buy’ recommendations for oil-marketing companies HPCL, BPCL, and IOC, revising their target prices significantly upwards. The new target prices stand at Rs 630 per share (from Rs 375) for HPCL, Rs 860 per share (from Rs 555) for BPCL, and Rs 185 per share (from Rs 130) for IOC. This revision comes as HSBC sees further potential for re-rating of these stocks in the future.
Since the beginning of 2024, HPCL, BPCL, and IOC have witnessed impressive surges in their stock prices, ranging from 27 percent to 34 percent, compared to the modest 0.3 percent rise in the benchmark Sensex.
Analysts at HSBC anticipate that the profitability of oil-marketing companies will be supported in the near term by a rangebound movement in oil prices. They believe that reduced government intervention and implicit support will lead to a re-assessment of valuation multiples. Additionally, medium-term benefits are expected from refinery upgrades.
Earlier, Morgan Stanley analysts also expressed optimism about the re-rating potential of OMC-related stocks, citing tight fuel supplies and increasing availability of challenging crude. They anticipate both earnings upgrades and re-rating in these stocks, with multiples potentially reaching levels seen in 2014-2017.
In terms of valuation, analysts highlight that IOC trades at a one-year forward P/BV of 1.2x, which is 19 percent below +1 standard deviation (SD); BPCL trades at a one-year forward P/BV of 1.5x, near historical averages; and HPCL trades at a one-year forward P/BV of 1.5x, near +1SD.
Disclaimer: The views and investment tips expressed by investment experts on LegalParivar.com are their own and not those of the website or its management. LegalParivar.com advises users to check with certified experts before taking any investment decisions.
