HPCL, BPCL, Indian Oil shares surge on Petroleum Minister remarks — Explained

Shares of Oil Marketing Companies (OMCs), Hindustan Petroleum Corporation Ltd. (HPCL), Bharat Petroleum Corporation Ltd. (BPCL), Indian Oil Corporation Ltd. (IOC), along with other names like MRPL, gained as much as 7% on Monday, September 29, after Union petroleum minister Hardeep Singh Puri expressed the need for higher valuations for these companies.

Puri pitched for higher valuations of public sector oil and gas companies. He expressed the Centre's disappointment in the investor community, saying the three OMCs — Indian Oil Corporation Ltd. (IOC), Hindustan Petroleum Corporation Ltd. (HPCL) and Bharat Petroleum Corporation Ltd. (BPCL) —together constituted 3.3% of corporate India's profit last year, while their market value is less than 1%. "So, we believe that we are undervalued," he said.

The minister also said the government's policy is less interventionist and that more focus should be on capex quality and value unlocking. He reaffirmed stable energy pricing policy as well.

On the subject of management pay, the minister elaborated that 15% of it is linked to share price returns, besides profitability.



Valuations of oil and gas companies are clearly the big focus point. Here's how they are trending currently in comparison to their historic valuations:

Company	FY27 PE	5-year average
BPCL	8.9x	11.9x
HPCL	7.5x	6.6x
IOC	9.6x	7.5x
ONGC	6.8x	6.5x
GAIL	11.3x	9.9x

The market capitalisation of Nifty oil and gas is at ₹30.23 lakh crore. Its price-to-earnings ratio is at 11.8 multiples. The compound annual growth rate (CAGR) for 10 years is at 15.3%.

Value unlocking opportunities in the sector could be:

• IOC and GAIL's plans to list pipeline infrastructure investment trusts (INViTs).


• GAIL is set to monetise the natural gas pipeline, while IOC is set to monetise the crude oil and petroleum pipeline.


• Demerger of HPCL's lubricants business.


• Demerger and listing of GAIL Gas.

Brokerage firm Jefferies is of the view that none of these unlocking measures have materialised, so far. Such spin-offs or demergers would unlock value for shareholders, it said.

Brokerages' view

JP Morgan said investor confidence may take time to develop for these companies, and prefers BPCL, IOC and HPCL, in that order.

Jefferies said the Centre has a preference for sticky pump prices for petrol and diesel, implying volatile marketing margins going forward. It said this implies that periods of supernormal marketing margins or marketing losses, depending on crude price volatility.

Emkay said the ministry of petroleum and natural gas is cognizant of the cross-holdings and holding company discounts, which it intends to address. The dilution is not feasible and full divestment is not currently envisaged, it added.

Shares of BPCL, HPCL, IOC were trading up to 4% higher around 12.20 pm on Monday.

Also Read: Defence stocks that will contribute to the ₹30,000 crore Indian Army QRSAM order