BPCL, HPCL, IOC: Why OMC stocks are rising; more upside ahead?

Shares of oil marketing companies BPCL, HPCL and IOC climbed up to 4 per cent in Tuesday's trade amid optimism over a likely reduction in under-recoveries and a surge in auto-fuel margins to about Rs 12 per litre due to the recent drop in crude oil prices. 

In a fresh measure, the oil minister announced a Rs 50 per cylinder increase in LPG prices, with a fortnightly review. This is after the government announced Rs 2 per litre increase in excise duty. The measures would be used to fund FY25 LPG subsidy payment. 

HPCL jumped 4 per cent to Rs 367.50. BPCL climbed 2.7 per cent to hit a high of Rs 281.80. IOC advanced 2.06 per cent to Rs 131. Despite this, OMC stocks are down 6-14 in Calendar 2025 so far, primarily due to non-compensation of FY25 LPG under-recovery in the Union Budget, amounting to Rs 41,340 crore, as per the oil ministry. 

Emkay Global said these steps are positive for OMCs, as the excise hike is reasonable and current blended auto fuel gross marketing margin at $65 per barrel.  

"Brent is still at Rs 11-12 litre; this implies a Rs 7 per litre premium over normative Rs 4-5 per litre levels. This translates into over-Rs 1 lakh crore of auto fuel over-recoveries in FY26 which would significantly exceed our projected LPG under-recoveries. This implies a Rs 3-4/ltr autofuel marketing margin cushion, which provides comfort up to $75 a barrel of Brent," Emkay said.

Gains on the refining front can also accrue from Middle East crude exporters cutting OSPs and Russian crude economics improving, it said. 

"The sharp correction in crude to $64 per barrel against Q4 average of $75 per barrel has boosted auto-fuel margin to Rs 12 per litre, which post the excise hike to Rs 10 per litre, which is still Rs 5 per litre
higher than our FY26 estimate of Rs 4.8 per litre," Antique Stock Broking said. 

This brokerage said valuations remain attractive for OMC at 4.1–4.5 times EV/ Ebitda. It suggested 'Buy' on HPCL (target: Rs 565), BPCL (Rs 425), and IOC (Rs 172).

Emkay Global stayed positive on OMCs and prefer HPCL, BPCL and IOC in that pecking order, with unchanged target prices of Rs 450, 375 and Rs 160 per share.

"OMCs are in a sweet spot with strong auto-fuel margins, expected recovery in Singapore GRMs (USD 5–6/bbl aided by refinery shutdowns and improving light-heavy differentials as OPEC+ unwinds cuts and fall in Saudi OSPs) and no LPG under recovery overhang," Antique said.