In past six months, IOCL, BPCL, HPCL has underperformed the market by falling in the range 11% to 13%, against 8% rise in the benchmark index.
Analysts at Nirmal Bang Equities expect the upside earnings for OMCs to be capped due to decline in gross refining margin (GRM) environment, planned capex and the rise in interest cost.
“Given our concerns on the likely decline in GRM, increase in capex over the next five years and the rise in interest costs, we expect the upside in earnings of HPCL to be capped. We believe that with low earnings growth likely and a decline in Return on Equity (RoE) and Returns on Capital Employed (RoCE), the stock will get de-rated,” analysts said in Q3 result update.
“Weak GRM environment, planned capex and interest costs set to increase in the coming quarters will exert pressure on cash flow and lead to increased debt of BPCL. We maintain our concern over cash flow and probable decline in RoE/RoCE with the rise in planned capex,” the brokerage firm said in a note.
IOCL will invest Rs 7 billion to raise its oil refining capacity by about a quarter by 2030 as it takes the lead to meet rising energy needs of the country.
BPCL is looking to ramp up capacity to 56 MTPA, from 36.5 MTPA currently, by adding 5 MT to its Kochi unit and ramping up capacity of Bina refinery in Madhya Pradesh by 9 MT to 15 MTPA. Also, Numaligarh capacity will go up to 9 MTPA from 3 now.