Whalesbook
ONGC Stock Outlook and OMC Pricing Choices
CLSA analysts predict Oil and Natural Gas Corporation (ONGC) stock could surge 65% from its current ₹270 level, making it a top sector pick. This bullish view comes as major oil marketing companies (OMCs) like HPCL, BPCL, and IOC are expected to hold off on significant petrol and diesel price increases, even with Brent crude oil near $100 per barrel.
OMCs Face Margin Squeeze
The break-even Brent level for auto-fuels was estimated at $75-80 per barrel, even considering current market conditions. CLSA expects crude prices to remain above this range. As a result, OMCs could struggle to achieve healthy marketing margins, a significant change from the unusually high profits seen over the past two to three years. CLSA analysts Vikash Kumar Jain and Samridh Mangla stated that large price hikes to cover higher crude costs are unlikely, suggesting companies will need a more balanced approach following exceptional profitability.
Analysts Divided on OMC Stocks
This outlook clashes with Ambit Institutional Equities, whose analysts recommend selling OMC stocks. They cite balance sheet risks from oil prices predicted to stay high through FY30. Ambit forecasts integrated margins of ₹3-5 per liter for FY27-30, down from ₹6-8 per liter, leading to target price cuts of 45-57%.
Impact of Small Price Hikes
Although OMCs recently raised prices for premium 95-octane petrol by ₹2 per liter and industrial diesel by ₹22 per liter, the effect is expected to be small. Nomura estimates premium petrol's low single-digit market share means less than a 1% impact on earnings before interest, taxes, depreciation, and amortization (EBITDA). Industrial diesel makes up about 13% of total sales, but OMCs may still lose money on these as total costs exceed ₹140 per liter. Nomura projects EBITDA impacts of ₹122 billion for IOCL, ₹76 billion for BPCL, and ₹67 billion for HPCL, equivalent to a 20-22% hit on their typical annual earnings. The price increases for bulk diesel are expected to add nearly ₹2 per liter to marketing margins.
Future Crude Oil Price Projections
Looking ahead, analysts have updated their crude oil forecasts. Rabobank International projects Brent crude will average $107 per barrel in Q2 2026, $96 per barrel in Q3, and $90 per barrel in Q4. Ambit Institutional Equities has increased its FY27 Brent crude estimate to $85 per barrel from $65, expecting it to fall to $70 per barrel by FY30.