BPCL, HPCL, IOC: Up to 26% upside? Nomura raises target prices, prefers this OMC stock

Nomura India has upped its stock targets for oil marketing companies (OMCs) namely Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation (HPCL), with the brokerage suggesting preference for BPCL due to its superior gross refining margins (GRMs) and attractive valuations. IOC, it said, is the least preferred among the three, due to high refining and petchem exposure and increased capex intensity.

The foreign brokerage raised its target for BPCL to Rs 435 from Rs 360 earlier. The target for HPCL is raised to Rs 540 from Rs 435 and for IOC to Rs 160 from Rs 150 earlier.     

Nomura India said marketing margins for petrol and diesel were close to the highest ever in Q1. OMCs realised Rs 10.30 per liter margin compared with the past five years’ average of Rs 3 per liter. This is despite the Rs 2 per liter hike in excise duty announced by the government for both petrol and diesel in April this year. 

With a ceasefire between Iran and Israel already in place, we believe that much of the volatility in the crude oil market is behind and the India government might be looking to readjust the margins earned by OMCs either through excise duty hikes or some cut in fuel prices, or a combination of both, Nomura India said.  

"Nevertheless, we expect marketing margins to average at Rs 6/liter for FY26-28F for all OMCs, which is still a highly healthy margin," Nomura said.

The brokerage noted that OMCs have also lined up significant capital investments in refining and petchem capacity expansions and higher marketing margins could help partially fund some of those initiatives.

"We also take into account Rs 30,000 crore recovery from the government during FY26 related to the cumulative LPG losses experienced up to FY25, to be proportionally divided between IOC, BPCL and HPCL," it said. 

BPCL vs HPCL vs IOC
Nomura said BPCL reported an average refinery utilization at 106 per cent over the past five years compared with 96-99 epr cent for HPCL and IOCL. BPCL also leads its in terms of distillate yield averaging 84 per cent over the past five years compared with 73-77 per cent for HPCL and IOCL. Lastly, BPCL has consistently reported the highest GRM among its peers over the past five years. 

"BPCL trades at a ~15% discount to its historical average P/B at 1.5x and in line with its long-term average P/E at 9.3x," Nomura said.

This brokerage said HPCL has a strong tilt toward marketing and has performed the best over the past four months in terms of share price -- up 49 per cent against BPCL’s 40 per cent and IOC's 30 per cent increase. This also makes HPCL most vulnerable to any moderation in marketing margins from current levels, Nomura said.

The brokerage likes IOC due to its attractive valuation and upcoming refinery capacities of 17mtpa. IOC has significant downstream expansion plans, but with petchem currently in a down-cycle, Nomura does not expect any meaningful earnings contribution in the near-to-medium term from petchem expansion.