Centre Slashes Excise Duty On Petrol And Diesel: Should You 'Sell' Or 'Buy' OMC Stocks?

The shares of oil marketing companies (OMCs) witnessed a double reversal in trade on Friday, March 27 after having opened in green on Friday's trading session.

The centre's exist rate reduction by 10% buoyed OMC stocks in today's early trade, however, rising crude prices resulted in IOCL, BPCL, and HPCL trading upto 2% lower.

The three oil marketing company stocks had surged as much as 5% during opening deals with BPCL shares surging 5%, HPCL hitting 4% and. IOCL at 2%.

As of 1:50 PM, the OMC stocks were largely trading in green. The shares of HPCL was 0.20% higher at Rs 344.90 apiece, BPCL was trading 0.76% higher at Rs 286.75 piece. However, IOCL share price was trading 1.03% lower at Rs 139.20 apiece.

Also Read: Centre Ensures Direct Relief On Petrol, Diesel Rates: Check Latest Price

Should You Buy, Sell Or Hold OMC Stocks?

With no retail pricing freedom, OMCs will have to absorb higher crude and freight/insurance costs. The negative public sentiment amid LPG shortages makes large petrol/diesel price hikes very difficult, according to a Kotak Institutional Equities report.

"OMCs have benefited from elevated marketing margins in the past few years. However, weak earnings are now set to erode the buffer created. Post-crisis, new capex for LPG storage is likely," it said.

Kotak Institutional Equities reiterated "sell" on all "OMCs" stocks, including BPCL, HPCL, and IOCL.

"Maintain SELL on IOCL, BPCL and HPCL, with revised FVs of Rs 100 (Rs 125 earlier), Rs 240 (Rs300 earlier) and Rs 235 (Rs 335 earlier), respectively," it noted.

"We are reducing our FY2027E EBITDA by 45-47% for BPCL and HPCL and 28% for IOCL. We also cut FY2028E EBITDA by 3-8%," it added.

Further, the brokerage house stated that beyond higher crude benchmarks, the "OMC stocks face pressure due to elevated crude premiums, higher freight expenses and a weak rupee". Paradoxically, the high product cracks can hurt amid frozen retail prices.