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Selling pressure was seen in the stocks of these companies after the Budget 2025 made no provision to compensate for the under-recoveries for these OMCs. As of the first nine months of 2025, the under-recoveries for OMCs stood at close to ₹30,000 crore.
Jefferies has cut its price target on BPCL to ₹330 to ₹370 earlier and for Indian Oil to ₹150 from ₹170 earlier, although it has maintained its “buy” rating on both these stocks. For HPCL, where Jefferies has an “underperform” rating, the price target has been cut to ₹270 from ₹295 earlier.
The brokerage wrote in its note that the budgeted LPG subsidy by the government implies that the OMCs will bear nearly 69% of the under-recoveries for financial year 2025 on the regulated product after a gap of nearly nine years. “This move suggests that the government has capped marketing profitability of OMCs where superior margins in auto fuels are partially negated by losses on LPG,” the Jefferies note said.
The move also creates higher uncertainty on the profitability of these OMCs if crude oil prices rise sharply past $85 per barrel, which could also narrow auto fuel margins in the futures, according to Jefferies.
Although Jefferies has left the earnings estimates unchanged given that they expect these companies to make normalised marketing margins during the fiscal, it has lowered the price-to-book multiples on these companies by 10% to account for the cap on these earnings, as suggested by the government action.
Out of the 34 analysts that have coverage on HPCL, 19 of them have a “buy” rating on the stock, six say “hold”, while nine have a “sell” rating on the stock.
61% out of the 34 analysts that have coverage on BPCL have a “buy” rating on the stock, while 15% of those have a “sell” rating.
Indian Oil has the highest number of “sell” recommendations among the three OMCs at 10, while 17 out of the 34 analysts have a “buy: rating on India’s largest OMC.
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