Oil Marketing Companies Set to Drive Profits in FY24, Kotak Reports

Oil marketing companies (OMCs) BPCL and HPCL are projected to play a significant role in boosting profits for the Nifty index in the financial year 2024, according to a report by Kotak Institutional Equities. The report highlights that BPCL and HPCL, along with other OMCs, are set to contribute substantially to the incremental Nifty profits, with a focus on FY24 performance. Kotak’s assessment indicates that OMCs may potentially affect overall profits as the market normalizes in FY25.

Kotak’s analysis factors in assumed refining and marketing margins for OMCs in the upcoming years, projecting a notably higher performance compared to historical levels. The fiscal year 2023 summary showcases a strong beat in Ebitda estimates for IOC, driven by better-than-expected gross refining margins (GRM) and enhanced marketing margins. Similarly, BPCL exceeded Kotak’s GRM estimate, although its marketing margin fell slightly below projections. Despite an operational beat, higher employee benefit expenses counterbalanced BPCL’s performance.

The report anticipates a 23% increase in net profits for the oil, gas, and consumable fuels sector within the Nifty-50 index for FY2024. This growth is primarily fueled by the heightened profits of BPCL and HPCL, supplemented by RIL‘s contributions from its retailing and telecom divisions. The contrasting trends of lower profitability within Coal India and ONGC are expected to be offset by the sector’s overall positive performance.

While HPCL and IOC are not included in the Nifty Index, they are forecasted to experience a substantial profit rebound in FY2024. Notably, OMCs demonstrated a remarkable 4.6-fold increase in profitability in the third quarter, driven by robust marketing margins.

Looking ahead, HPCL’s management is optimistic about a recovery in the fourth quarter of FY24. They anticipate refinery throughput figures exceeding 22mmtpa for the fiscal year, coupled with marketing sales volumes around 44mmtpa. Additionally, the initiation of petrochemical production is slated for 2025, as per HPCL’s management guidance.

BPCL’s strategic outlook includes a projected 5% growth in MS consumption and 1.5-2% growth in diesel, despite the rise in electric vehicle adoption trends. The removal of the Mozambique force majeure is expected by mid-2024, offering further growth avenues for the company.