OMC Stocks: Should you buy HPCL, BPCL, IOC shares amid falling crude oil prices, excise duty hike?

Shares of oil marketing companies (OMC), including BPCL, HPCL and IOCL, rallied up to 4% on Tuesday. HPCL share price jumped as much as 4%, while BPCL share price rallied 2.7% and IOC shares gained as much as 2.06%.

The three state-run OMCs, Hindustan Petroleum Corporation Ltd, Bharat Petroleum Corporation Ltd and Indian Oil Corporation Ltd, saw a sharp movement in their share prices after the government announced a hike in excise duty on petrol and diesel.

On Monday, the central government increased the excise duty on petrol and diesel by ₹2 each with effect from April 8. The move comes at the time when global crude oil prices are falling.

The Oil Minister also announced an ₹50 per cylinder increase in LPG prices, with a fortnightly review, post the government’s announcement of increase in excise duty to fund FY25 LPG subsidy payment.

Impact on OMCs

Here’s how the increased excise duty will impact the oil refining companies - HPCL, BPCL and IOCL.

Following the sharp decline in crude prices to $64 per barrel post US President Donald Trump’s tariff announcement, OMCs are currently earning a supernormal auto-fuel marketing margin of ₹12 per litre on spot basis. This is expected to moderate to ₹10 per from 8th April, as the government has raised excise duty by ₹2 per litre, according to a report by Antique Stock Broking.

This is still more than ₹5 per litre higher than Antique Broking’s FY26 estimate of ₹4.8 per litre.

“We estimate LPG underrecoveries to fall to ₹60 per cylinder by August, driven by our estimate of $85 per ton drop in propane prices (to USD 525/ton) by end-August, led by lower crude and seasonal softness, while under-recovery is likely to be driven down to zero,” said the brokerage firm.

Even if retail fuel prices were cut in the near future (assuming crude sustains at $65/bbl), the brokerage firm believes that the OMCs will be able to sustain sufficient cushion in marketing margins to more than compensate for the possible weakness in refining, even though it continues to expect a recovery.

“Sustained weakness in crude oil prices should support more than healthy marketing margins, more than offsetting near-term refining softness and LPG losses (which is expected to reduce sharply in the coming months!) going down to zero. With strong auto-fuel margins, GRM recovery and removal of LPG loss burden overhang OMCs are in a sweet spot,” Antique Stock Broking said.

Should you buy OMC stocks?

OMC stocks are down 7%–16% YTD, primarily due to non-compensation of FY25 LPG under-recovery in the Union Budget amounting to ₹413.4 billion as per the oil ministry, the brokerage firm noted.

The correction has left valuations of OMC stocks very attractive at 4.1x–4.5x EV/EBITDA (adjusted for investments), it added.

Antique has a ‘Buy’ rating on all three OMCs, with a HPCL share price target of ₹565, BPCL share price target of ₹425, and Indian Oil share price target of ₹172.

At 10:00 AM, HPCL shares were trading 0.38% higher at ₹354.70, BPCL shares were trading with a gain of 1.04% to ₹277.25, while IOCL shares were trading 0.58% higher at ₹129.10 apiece on the BSE.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.