OMC Stocks Tank 5% On Bearish Goldman Sachs Note Post Weaker Than Expected Earnings

Shares of oil marketing companies (OMCs) dropped up to 5 per cent on November 4 after Goldman Sachs issued a bearish outlook on the sector.

Indian Oil Corporation, Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL) largely missed Q2 results expectations. Global brokerage Goldman Sachs believes marketing and refining were among the key factors that led to the misses.

According to the November 4 GS note, OMC EBITDA for the July-September quarter was generally weaker than anticipated, with IOC’s EBITDA 21 per cent below estimates, HPCL 6 per cent lower, and BPCL 4 per cent below projections.

For Indian Oil, earnings miss was driven by weaker-than-expected earnings across the refining, marketing and petchem segments. Meanwhile, for HPCL and BPCL, the miss was driven by marketing and refining, respectively, the note said.

The brokerage explained that Indian Oil’s earnings miss was driven by weaker-than-expected earnings across the refining, marketing and petchem segments.

Goldman Sachs sees the largest downside risk for Indian Oil and has, therefore, retained its sell call on the OMC stock with a target price of Rs 105. This means the brokerage expects a 27.5 per cent downside in the stock from the closing price of November 1, the day of Muhurat Trading.

The remarks come as India’s top refiner IOC posted a nearly 99 per cent drop in its second-quarter profit as narrowing marketing margins hurt. The state-owned firm’s standalone net profit plunged to Rs 180 crore for the three months ended September 30. This was well below the CNBC-TV18 poll estimate of ₹3,278 crore.

IOC’s average gross refining margin for April-September fell to $4.08 per barrel from $13.12 per barrel a year earlier. EBITDA fell by more than half, declining by 56 per cent from the June quarter to Rs 3,773 crore.

Goldman Sachs has retained a neutral rating on HPCL and BPCL stocks. The brokerage, however, has cut the target to Rs 370 from Rs 375 for HPCL whereas for BPCL, it has raised the to Rs 370 from Rs 365.

HPCL’s EBITDA increased by 29 per cent in Q2 from last year to Rs 2,724 crore but was below the poll estimate of Rs 4,176 crore. Its operating profit margin (OPM) rose to 2.7 per cent from 1.9 per cent in the June quarter, although it remained below the expected 4.2 per cent. Net profit also improved sequentially, reaching Rs 631 crore, up 77 per cent from Rs 356 crore in the prior quarter, but well below the forecasted Rs 1,779 crore.

The company’s gross refining margin (GRM) for the quarter was calculated at $3.2 per barrel, falling short of the $5.5 per barrel estimate. Crude throughput reached 6.3 million metric tonnes (MMT), exceeding expectations of 5.9 MMT.

“The primary reasons for the lower PAT include suppressed marketing margins on select petroleum products, reduced refining margins due to weaker crack spreads, and declining international crude and product prices,” the company said in an exchange filing.

Meanwhile, state-run Bharat Petroleum Corporation Ltd. (BPCL) reported a net profit of Rs 2,397 crore for the July-September quarter. On a sequential basis, BPCL’s net profit declined by 20.5 per cent.

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