OMCs Shares Rally as Goldman Sachs Upgrades Ratings

Oil Marketing Companies Shares Rise After Goldman Sachs Upgrades Ratings

Shares of oil marketing companies (OMCs) in India saw a jump on Wednesday after Goldman Sachs, a well-known financial firm, gave them better ratings and increased their target prices. This

positive news

comes after the shares of these companies had dropped around 25% from their high point earlier in 2024. Goldman Sachs believes that even though there are still some risks to the companies’ earnings, like lower discounts on crude oil and challenges with LPG subsidies, these issues are already factored into the current share prices.

Looking Ahead to a Brighter Future

Goldman Sachs paints a more positive picture for OMCs in the fiscal year 2026-27. They think the increase in crude oil prices will be limited and predict that the companies will start generating more free cash flow in the next fiscal year. Historically, better free cash flow has been a big factor in how well OMC stock prices perform.

Analyzing the Situation

Goldman Sachs believes that now is a good time to consider investing in these companies because their stock prices are more attractive. They believe the potential rewards outweigh the risks, based on their share price estimates. Their estimates factor in things like usual profit margins from fuel sales and typical crude oil discounts. Their most positive scenario assumes a return of bigger discounts on Russian crude oil and government support for LPG, while their less positive outlook assumes lower profit margins.

Good News for Indian Oil

Goldman Sachs improved their rating for Indian Oil Corp. from ‘sell’ to ‘neutral’, and bumped up their target price for the share to Rs 110 from Rs 105. [[Indian Oil]]’s stock has not done as well as others in the industry. The upgraded rating means that there seems to be a better balance of potential rewards and risks with Indian Oil.

Bharat Petroleum: A Buy Recommendation

Bharat Petroleum Corp. got a rating upgrade to ‘buy’ from ‘neutral’ with a target price of Rs 360. [[Bharat Petroleum]]’s current stock price is looking more affordable than its usual prices. As Bharat Petroleum goes into a cycle of spending on big projects, Goldman Sachs predicts that there will be increase by 10% in the free cash flow yield in the next financial year.

Morgan Stanley Likes Hindustan Petroleum

[[Hindustan Petroleum]] also got good news from Morgan Stanley, another big financial player. They upgraded Hindustan Petroleum Corp. to ‘buy’, and raised their target price to Rs 400. They think the company is finishing up its big projects, and will see a great jump in its free cash flow. Morgan Stanley expects that Hindustan Petroleum will have 40% more profits before interest, taxes, and other costs over the financial years through March 2027.

Market Reaction

The shares of HPCL and BPCL saw the biggest gains, increasing more than 3% early in the day. The Nifty Oil and Gas index, which tracks oil and gas companies, was one of the best performing sectors, going up 1.58% in the morning. Other companies like Mangalore Refinery and Petrochemicals, Oil India, and ONGC also had price increases of more than 2.5% on Wednesday, while the overall market (Nifty 50) was up just 0.18%.

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