Kotak Insights: BPCL, HPCL’s Impact on Nifty Profits and OMC Guidance for FY24

Kotak Institutional Equities has projected that in the fiscal year 2024, BPCL and HPCL, both integral to the Nifty index, will contribute significantly to the incremental profits, amounting to 31 percent. They anticipate that oil marketing companies (OMCs) may have a dampening effect on overall profits in the following fiscal year, FY25, as market conditions normalize. The institution predicts that refining and marketing margins of OMCs from FY2024-26 will surpass historical levels.

According to Kotak, IOC surpassed its Ebitda estimate due to better-than-expected gross refining margin (GRM) and higher marketing margin. While BPCL’s reported GRM exceeded expectations, its marketing margin fell short. HPCL missed Kotak’s Ebitda estimate in Q3 due to lower-than-anticipated marketing margin on diesel.

The projection indicates a 23 percent increase in net profits for the oil, gas, and consumable fuels sector within the Nifty-50 index for FY2024. This growth is primarily attributed to heightened profits of BPCL and HPCL, driven by assumed higher marketing margins on automobile fuels compared to the previous fiscal year. However, lower refining margins and higher profits from RIL’s retailing and telecom segments, along with decreased profits from Coal India and ONGC, are expected to counterbalance this increase.

Kotak also anticipates a significant profit recovery for OMCS HPCL and IOC in FY2024, despite their absence from the Nifty Index. OMCs witnessed a substantial increase in profitability in Q3, soaring 4.6 times from the year-ago quarter due to robust marketing margins.

Regarding guidance, HPCL’s management anticipates a recovery in Q4FY24, with refinery throughput expected to exceed 22mmtpa and marketing sales volume around 44mmtpa in FY24. Additionally, HPCL suggests that petrochemical production will commence in 2025.

BPCL’s management forecasts a 5 percent growth in MS consumption over the next five years and a 1.5-2 percent growth in diesel consumption, despite increasing EV adoption. They also expect the Mozambique force majeure to be lifted by June or July 2024.