OMC stocks on fire, thanks to fund-raising plans
Fund-raising plans and talks of the fund-injecting center boosted stocks of PSU refineries and oil marketing companies on Wednesday. Most refinery stocks, with the exception of market giant Reliance Industries (RIL), and Gujarat State Petronet Ltd (GSPL), closed in the green.
Bharat Petroleum Corporation Ltd (BPCL), touched a 52-week high of $387 on Wednesday but closed at $386.25, up about 3 percent from the previous day’s close; In fact, the stock has seen a 155 percent increase so far this year. Recently, the Board of Directors approved a capital increase up to Rs. 18,000 crore via a rights issue. The International Olympic Committee also recently announced its plan to raise money through a rights issue. The Board of Directors meets on July 7.
- Budget 2023: The government is allocating Rs 35,000 crore to OMC Refineries to replenish Strategic Petroleum Reserves
Mangalore Refinery & Petrochemicals Ltd (MRPL) rose by 12.19 per cent, closing at ₹88.89. During the day, the stock rose to a 52-week high of $90.98. Similarly, Chennai Petroleum Limited hit a 52-week high on Wednesday at INR 443.65; However, it closed at ₹427.65, up 6.9 percent.
Shares of Indian Oil Corporation (IOC) rose nearly one percent to INR 95.52.
Recent announcements of capital-raising plans by two of India’s three largest state-owned oil marketers — BPCL and Indian Oil Corporation Ltd (IOC) — should bolster capital spending and the credibility of their plans to reduce emissions, Fitch Ratings says.
It added, “The capital injection from the Indian government will provide further evidence for our assumption that the two companies will receive exceptional sovereign support if required, which is the key factor underpinning their ‘BBB-’/Stable ratings.”
The three major PSU refineries – BPCL, HPCL, IOC – posted a combined profit of Rs 20,000 crore in the latest quarter. In June, Anand Rathi recommended buying BPCL with a target price of $425.
The news of Manali Petrochemicals’ acquisition of a minor stake in First Energy, a Thermax Group company, resulted in the stock closing down 1.91 percent at $68.33.
Bhavik Patel, Senior Research Analyst at Tradebulls Securities, said that foreign funds are looking for sectors that have not yet been tapped, and noted that the petroleum sector is attractive at the moment..
In parallel with the OPEC cuts
The US Energy Information Administration expects the price of Brent crude to rise in the second half of 2023. The supply cuts announced by OPEC+ countries including Saudi Arabia have pushed up crude oil prices. Patel said, “The outlook for the sector looks good, but it will not outperform the broader markets in the future. Whenever OPEC decides to cut production to support prices, the margins of these companies will be affected.”
Institutional Kotak said that for Oil Marketing Companies (OMCs), excessive recoveries of around Rs 24,000 to 25,000 crore would more than offset poor refining margins.
Brokerage firm Prabhudas Liladr, in its segment report, said, “We expect OMCs’ results to be better operationally due to a recovery in marketing gains to blend margins at $9/l versus ₹3/l in the fourth quarter, despite lower REMs. So, while refining earnings will be lower, the recovery in marketing margins will drive the first quarter of value added.”