Stocks To Buy: HPCL, BPCL, IOC shares can rise another 31%, Morgan Stanley projects

Brokerage firm Morgan Stanley has raised its price target on India's state-run oil refiners Hindustan Petroleum Corporation Ltd. (HPCL), Bharat Petroleum Corporation Ltd

. (BPCL) and Indian Oil Corporation Ltd. (IOC) by up to 23% on Thursday, November 6, expecting these stocks to rally further. The brokerage remains "overweight" on all three stocks.

Indian Oil's price target has been raised to ₹207 from ₹168 earlier, which implies a potential upside of 25% from current levels.

BPCL's price target has been raised to ₹468 from ₹397 earlier, which implies an upside of 31% from while HPCL's target was raised to ₹610 from ₹533 earlier, implying a potential upside of 28% from current levels.

Morgan Stanley expects the free cash flow generated by these fuel retailers to be at least one-third of their current market cap over the next three years cumulatively after having made over $20 billion in investments by 2027. It expects half of that free cash flow to be distributed to shareholders.

The brokerage also expects the earnings for these companies to grow at a Compounded Annual Growth Rate (CAGR) of 10% in US Dollar terms over the next three years, as well as deliver a Return on Equity (RoE) of 20%. Such prospects make these stocks attractive globally, according to Morgan Stanley, who prefers HPCL, Indian Oil and BPCL in its pecking order.

While crude oil prices remain in a narrow range, Morgan Stanley sees $65 to $70 per barrel as a sweet spot for these state-run refiners. "At these levels, the risk of government price intervention is low, as current margins are vital to incentivise investment in energy security and attract foreign capital," the brokerage said, adding that India’s diversified crude sourcing and upgraded refining hardware provide flexibility to absorb tighter discounts.

Morgan Stanley sees a limited impact of the reduced intake of Russian Crude on the earnings of these companies and on consumers as well. It expects the earnings upgrade cycle to remain intact as long as oil prices remain below $70 per barrel.

The brokerage prefers HPCL among the three OMCs as it offers greater leverage to higher refining margins and benefits from hardware upgrades. Indian Oil's balance sheet strength may surprise through financial year 2027, according to Morgan Stanley.

34 analysts on both HPCL and Indian Oil, of which 24 of them have a "buy" rating on HPCL, 22 of them have a "buy" on Indian Oil, while 24 out of the 33 analysts covering BPCL have a "buy" rating on the stock.

Shares of HPCL are trading 2.4% lower on Thursday at ₹473, while those of BPCL are trading 1.1% lower at ₹368.6. Shares of IOC are trading 0.5% lower at ₹168.35. Stocks have gained between 15% to 25% so far in 2025.