Oil & Gas stocks, Q1 results impact: On the back of weak June quarter earnings, oil & gas company stocks – Bharat Petroleum Corporation Limited (BPCL), Hindustan Petroleum Corporation Limited (HPCL) and Petronet LNG slipped up to 6 per cent on the BSE intraday during Monday’s trading session.
The oil marketing companies (OMC) shares such as BPCL slumped almost 5 per cent to Rs 320.3 per share and HPCL down over 6 per cent to Rs 235.1 per share on the BSE intraday. Similarly, Petronet LNG shares declined nearly 3.5 per cent to Rs 208.4 per share on the BSE intraday today.
In 1QFY23, BPCL reported a record GRM (Gross Refine Margin) of US$27.5/bbl, yet, as retail fuel prices were kept frozen, higher GRM led to higher marketing loss, Kotak Institutional Equities said, adding that it reported the second largest EBITDA loss driven by larger marketing loss.
With refining margins declining, retail prices frozen, and losses rising, the brokerage said OMCs have become un-investable, in the near term. It downgrades BPCL to SELL from BUY with a target price of Rs 245 per share.
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On the contrary, JM Financial gives a Buy rating on BPCL on the back of strong valuations ground (trading at 1.2x FY24 P/B). The brokerage sees the share price surging to Rs 385 per share.
HPCL’s 1Q EBITDA loss of Rs 125 billion was much deeper despite the highest ever GRM of US $16.7 per bbl, driven by large losses in marketing, Kotak Institutional Equities said. It added, “If not compensated, there is a risk that HPCL’s net worth will erode sharply in FY2023E.”
With large under-recoveries and uncertainty on compensation, HPCL looks most precarious, the brokerage said, downgrading HPCL to SELL with a target price of Rs 165 per share.
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Conversely, JM Financial, like BPCL, maintained a BUY rating with a target price of Rs 270 per share on valuation grounds (trading at 0.8x FY24 P/B).
Petronet’s 1QFY23 standalone EBITDA was below JM Financial estimates, however, PAT was in line due to higher other income. The company’s total volume was at 3% above estimate led by a recovery in Dahej utilisation to 86% while Kochi utilisation was stagnant at 18% due to high spot LNG price.
The brokerage believes Petronet LNG’s foray into non-core Petchem, LNG fuel retaining, etc. are outside its core competence areas and could be value destructive, and hence, maintain an HOLD rating with a target price of Rs 210 per share as capital misallocation risks continue.
