The companies in focus include BPCL, HPCL and Indian Oil Corporation Limited. These companies buy crude oil at international prices from oil-rich nations and sell them at retail prices to the end users.
What has happened is that the international crude oil prices remained at an average price of $100/barrel, thus increasing the input cost for these companies. Whereas the retail prices at which these companies sell petrol and diesel to end users did not increase at the same pace, thus leading to losses for these companies as refining margins shrank.
What is the Projection for Q2 FY23?
In Q2 FY23, the refining margin on petrol stood at minus Rs 1.2 per litre compared to a margin of minus Rs 10.2 per litre in Q1. At the same time, the refining margin on diesel stood at minus Rs 13.4 per litre in Q2 FY23 versus a margin of minus Rs 12.5 per litre in Q1.
According to estimates by ICICI Securities, Indian Oil is expected to report a loss of Rs 6,300 crores, BPCL a loss of Rs 6,900 crores, and HPCL a loss of Rs 8,100 crores in Q2 FY23, leading to combined losses of Rs 21,300 crores, up from a combined loss of Rs 18,500 crore in Q1 FY23.
What’s in Store for Investors?
The stock prices of India Oil Corporation, BPCL, and HPCL are down 10.5%, 20.3%, and 26.41% year-to-date. In comparison, the Nifty 50 is down by 1.8% in the same period. This indicates that some or all of the Q2 earnings effect might be priced in the stocks of these companies. However, any further negative surprises can be perceived unfavourably by the market.
The good part, however, is that these stocks provide a handsome dividend yield of more than 5% at their current market prices!
Note: The stocks mentioned in the article are for informational purposes.