HPCL posts good results but pump prices drag shares

Last Friday HPCL came out with its results. Although results were good but the shares recated negatively on Monday. It seems market is selling on news and booking profits. HPCL’s profit increased 79% (YoY).  Its revenue from operations increased 9% (YoY). Jefferies maintained underperform rating with target price of Rs 205. This week we will have results of IOC.

For the fourt quarter of FY23, ICICI Direct expects upstream profits to remain flat, while marketing margins may improve.

In recent times,  crude oil prices have fallen but petrol and diesel prices have remained static. Going ahead,  one thing that will benefit companies is the base effect. Last year these companies faced loss of more than Rs 27k crore. as oil prices shot up and rupee fell. Due to the Russia-Ukraine war, there were concerns about the oil supply which led to an increase in oil prices. At the same time, due to the flight towards safe haven, money flew in dollars and emerging currencies like rupee took a hit. India imports 85% of its oil requirement. So their cost went up. However, they were unable to increase prices. So that led to a huge loss. In fact, it is reported that their working capital debt increased 40% due to this.

So, going ahead fall in crude oil prices and base effect can aid growth for oil companies in first and second quarters of FY24.

Also, one more development is the capital requirement for these companies. The government has decided to infuse capital as equity but these companies want debt. Here IOCL, BPCL, and HPCL have a debt-to-equity ratio above 1. So for them taking additional debt can cause concerns amidst possible volatility ahead if the economy revives more quickly than expected. That’s why maybe the government is reluctant to increase the debt levels of these companies.