Oil Mar­ket­ing Cos Likely to Post Strong Q4, FY16 Show

Lower crude prices, weaker ru­pee against the dol­lar and bet­ter mar­ket­ing mar­gins to help; CLSA hikes tar­get price on HPCL, BPCL & IOC

The Economic Times - - Smart -

Mum­bai: Oil mar­ket­ing com­pa­nies (OMCs) such as HPCL, IOC and BPCL are likely to post strong num­bers for the March quar­ter and also for the full year, amid lower crude prices, weaker ru­pee, less in­ven­tory losses and bet­ter mar­ket­ing­mar­gins,said­an­a­lysts.This is the first full year earn­ings for OMCs post diesel dereg­u­la­tion in 2014.

An­a­lysts ex­pect an av­er­age of 33153% growth in op­er­at­ing profit, and 36-240% in net profit for the full year ended March 2016.

“Elim­i­na­tion of in­ven­tory losses and higher mar­ket­ing mar­gins should en­sure a strong Q4 for OMCs,” said CLSA on Wed­nes­day. “Build­ing in higher GRMs,weakru­pee­and­low­er­crude,we raise FY16-18 EPS es­ti­mates for all three by 2-26% and tar­gets by 8-22%.”

CLSA, while main­tain­ing its buy rat­ing, has in­creased its tar­get price for IOC to ₹ 540, BPCL to ₹ 1,130, and HPCL to ₹ 1,020. Baku. Oil Rigs

WhiletheHPCL­s­tock­has­surged52% from its 52-week low, BPCL and IOC have bounced back 36% and 30%, re­spec­tively, but an­a­lysts still feel that val­u­a­tions are very at­trac­tive.

“Fi­nan­cialper­for­manceof OMCshas been largely nor­malised with RoEs at 18-24%,” said Har­shad Bo­rawake, re­search an­a­lyst, Moti­lal Oswal Se­cu­ri­ties. “Cur­rent val­u­a­tions do not re­flect mul­ti­ple levers of sus­tained earn­ings growth and higher re­turn ra­tios for OMCs.”

OMCs are cur­rently trad­ing at FY18 es­ti­mated PE of 5-8 times, com­pared with their 5-year av­er­age PE of 13-22 times. Also, their es­ti­mated div­i­dend yield for FY17 is 3.5-4.5%.

On the other hand, In­dia’s oil de­mand for Q4 grew 14.5% YoY against 8.5% in 2015. This is the seventh con­sec­u­tive month the three-month rolling tracker has­shown­dou­ble-dig­it­de­mand­growth.

“We re­main pos­i­tive on OMCs as ev­ery per­cent­age point of vol­ume growth helps EPS by 1.5%,” said Badri­nath Srinivasan of Credit Suisse.

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