Equity analysts cut forecast earnings for OMCs

Elevated crude premiums, currency depreciation and mounting freight costs will hit earnings of oil marketing companies in fiscal 2027, according to analyst reports.

“We are reducing our FY2027E EBITDA by 45-47% for BPCL and HPCL and 28% for IOCL. We also cut FY2028E EBITDA by 3-8%. Further firming up in oil prices could push OMCs into losses in FY2027E,” said Kotak Institutional Equities in its report., recommending clients to sell the stocks. 

Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA), is a measure of profitability without accounting for gross profit without providing for non-operational and non-cash costs.  

“With integrated margin under pressure and share of refining margin in overall integrated margin increasing, companies with higher earnings sensitivity to marketing margins will be the most negatively impacted. For every ₹1/ltr decrease in marketing margin, IOCL/BPCL/HPCL’s FY27 EPS reduces by 21/20/24%. according to a note by HDFC Securities.

“Given that IOCL has a lower marketing mix in the overall volume, it should fare better compared to peers like BPCL and HPCL in the near term,” it added in the report.