The brokerage highlighted BPCL’s strong earnings visibility and favorable valuations while cautioning about risks facing Hindustan Petroleum Corporation Ltd (HPCL).
“BPCL stock has corrected ~10% over the past year even as its earnings outlook remains firm with crude under US$70,” Jefferies said in its note. The brokerage pointed out that BPCL currently trades at the same forward P/B as HPCL, but it noted a higher risk to HPCL’s earnings from new projects that typically take three to five years to stabilize after commissioning, and from any potential excise duty hike.
In contrast, Jefferies believes BPCL offers more stability in earnings. “Prefer BPCL on strong earnings visibility and favorable valn,” the report said.
Jefferies observed that the downstream earnings outlook for OMCs remains well-supported by crude price trends.
“Oil price has hovered below US$ 70/bbl since March with OPEC+ increasing supplies by 2.2mbpd between Apr-25 and Sep-25. Demand is projected to increase only 0.68mbpd in CY25 (IEA), with expectation of 1.5mbpd of oversupply in 4CQY25. Benign crude price outlook is supportive of OMCs earnings over FY26E,” it said.Marketing margins were also noted to be trending well above historical averages. “Marketing margins on diesel/petrol at Rs 8.1/11.2 per ltr in YTDFY26 are tracking significantly ahead of normative levels,” Jefferies said, adding that such elevated margins have room for positive surprise to our/consensus estimates in FY26E even if there is some hike in excise duty by the govt.The brokerage underlined that this bodes well for BPCL’s earnings over HPCL’s, since HPCL is more vulnerable to duty changes.Jefferies pointed out that HPCL’s profitability is likely to be weighed down by its ongoing project expansions.
“Our analysis of past greenfield capacity addn or complexity increase in OMCs show years of drag on earnings due to long period to stabilize operations. This suggests HPCL’s earnings are likely to be dragged for a few years by the complexity increase in Vizag and start of greenfield refinery in Rajasthan by end-FY26,” the report said.
The brokerage drew on past case studies to highlight the earnings drag of new refinery commissioning. It noted that BPCL’s Bina refinery, with 11.8 Nelson Complexity, reported PBT losses for the first four years after its commissioning in FY12, with cumulative losses of Rs 37.5 billion, before turning profitable.
Similarly, IOCL’s Paradip refinery, with 10.8 Nelson Complexity, was the most complex among its nine refineries but reported lower GRM compared to the rest of IOCL’s network for its first five years, dragging profits.
BPCL’s Kochi refinery, commissioned in FY18 with Nelson Complexity raised to 10.9, also undershot the GRM of the Mumbai refinery for its first three years. Jefferies used these examples to underscore the risks HPCL may face as it embarks on its large-scale expansions.
On the policy front, Jefferies flagged a recent supportive development. “The Rs 300bn LPG subsidy compensation recently approved by the government should boost earnings over FY26-27, improve the book value of equity on the balance sheet and reduce debt,” the brokerage said.
From a valuation perspective, Jefferies noted that BPCL stock has corrected around 10% over the past year and currently trades at 1.4x forward P/B, in line with HPCL. The brokerage underlined that HPCL, unlike in the past, does not command any premium.
“BPCL’s current discount to Nifty of 55% on fwd P/B compares favorably with LT avg of 31%,” the report said. Jefferies maintained a Buy call on BPCL with a target of Rs 410 at 1.8x Sep-26 P/B, a Buy on IOCL with a price target of Rs 160 at 1.1x Sep-26 P/B, and an Underperform on HPCL with a price target of Rs 340 at 1.3x Sep-26 P/B.
The brokerage, however, warned of potential downside triggers. “Rise in crude price, any increase in excise duties on auto fuels, large capex commitment in new energy” remain key risks, it said.
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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
