1. Morgan Stanley, other global firms bullish on oil marketing companies on pricing freedom; shares rise

Morgan Stanley, other global firms bullish on oil marketing companies on pricing freedom; shares rise

Global research firms such as Morgan Stanley and Jefferies are bullish on the Indian oil marketing companies after oil minister Dharmendra Pradhan recently clarified that the government will not step in to check rising petrol and diesel prices, which hit three-year highs last week.

By: | Published: September 18, 2017 10:27 AM
 Shares of Indian oil marketing companies BPCL, HPCL and IOC were all trading up by more than 0.5% each this morning. (Image:Reuters)

Global research firms such as Morgan Stanley and Jefferies are bullish on the Indian oil marketing companies after oil minister Dharmendra Pradhan recently clarified that the government will not step in to check rising petrol and diesel prices, which hit three-year highs last week. Shares of Indian oil marketing companies BPCL, HPCL and IOC were all trading up by more than 0.5% each this morning.

The global firm Jefferies LLC has increased its target price on Petronet LNG to Rs 280 from Rs 248 earlier. Last week, Petronet LNG had successfully re-negotiated a deal with Exxonmobil, in what could potentially save up to Rs 10,000 crores for India. The shares were trading at Rs 234.3 on Monday morning, up by more than 1.4%. The shares have returned 26% in the year so far, as opposed to BSE Sensex returns of 21%. The shares have surged more than 6.5% in the last one month.

Morgan Stanley has a buy on Indian Oil Corporation with a target price of Rs 571. The shares were trading at Rs 418.05 on NSE this morning, up by more than 0.5%. Morgan Stanley believes that since there’s no intervention from the government now, these oil marketing companies are going to benefit. The global firm remains overweight on BPCL with a target of Rs 597. The shares were trading at Rs  501.15, up by nearly 0.8%. In case of HPCL the global research firm has a buy recommendation with a target of Rs 543.

The shares were trading at Rs 455, up by more than 0.5% since the previous close. Earlier last week, Jal Irani of Edelweiss Securities said that IOC, BPCL and HPCL are slated to benefit after Petronet LNG successfully re-negotiated a deal with Exxonmobil, as the companies have these companies have the highest number of take-or-pay contracts. In essence, take-or-pay provisions provide that a buyer must pay for specified quantities of energy (gas, for example) from a seller, even if the buyer is unwilling or unable to take such quantities.

The expert pointed out that GAIL and BPCL are poised to benefit from the deal, as both the companies have the largest take-or-pay contracts, followed by IOCL. “We like BPCL among the three the most,” he said, adding that IOCL is also on top in the pecking order.

Morgan Stanley said that all the oil marketing companies have registered strong gross refining margins in the quarter so far. Going forward, the global firm believes that the OMCs will report a core profit growth of 20-25% quarter on quarter.

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