HSBC bullish on HPCL, BPCL, IOC; upgrades target prices as it predicts further re-rating

HSBC analysts expect rangebound oil prices movement will support OMCs profitability in the near-term

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Global brokerage firm HSBC shared ‘buy’ calls for oil-marketing companies HPCL, BPCL, and IOC, raising their target prices to Rs 630 per share (from Rs 375), Rs 860 per share (from Rs 555), and Rs 185 per share (from Rs 130), respectively as they see more room for re-rating going ahead.

So far in 2024, the stock prices of HPCL, BPCL, and IOC have surged in the range of 27 percent to 34 percent, as against 0.3 percent rise in the benchmark Sensex.

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HSBC analysts expect rangebound oil prices movement will support OMCs profitability in the near-term. “We revise valuation multiples to reflect reduced government intervention and tacit support. The medium term will benefit refinery upgrade,” the brokerage firm said.

Earlier, analysts at Morgan Stanley also believed that there is plenty of headroom available for OMC-related stocks to re-rate. They said that these OMCs are in early days of this re-rating given tight fuel supplies and rising availability of challenged crude.

ALSO READ: OMCs close higher after Morgan Stanley says ‘more headroom left ‘

“Stocks of these oil refining and marketing companies are seeing multiples re-rate as investors reassess long-term growth prospects,” said the brokerage firm in its report. Morgan Stanley expects both earning upgrades as well as re-rating in these stocks with multiples rising to levels seen in 2014-2o17.

Valuation-wise, analysts noted that IOC trades at one year forward P/BV of 1.2x, 19 per cent below +1 standard deviation (SD); BPCL trades at one year forward P/BV of 1.5x, near historical averages; and HPCL trades at one year forward P/BV of 1.5x, near +1SD.

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