Oil Prices Cross $100: Jefferies Prefers This PSU OMC With 37% Upside
When crude gets this expensive, the first thought is that all oil stocks should do well. It doesn't really work like that. Some parts of the business make good money in this phase, while others take the hit. So brokerages are going piece by piece, and the answer for each company turns out different.
Refining Margins Are Still Strong
Jefferies assessed Bharat Petroleum Corporation's earnings against a refining market where margins remain elevated. A refining margin is what a refiner earns after turning crude into fuels like petrol and diesel. Jefferies said supply disruptions, including damage to refining facilities in Russia, cut Russian exports and tightened the middle-distillates market. Middle distillates, simply put, are fuels like diesel and jet fuel.
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The brokerage said refining margins went up week on week and are still high. Singapore gross refining margins (GRMs) averaged US$ 14.1 per barrel over the second quarter of FY27. Fuel "cracks", which is just the gap between crude price and the price of a fuel made from it, stand at US$ 37 per barrel for gasoline, US$ 63 for diesel and US$ 61 for aviation fuel.
Selling Fuel Is Still a Pain Point
Now the weak side. Oil marketing companies (OMCs) sell petrol and diesel at the pumps, and Jefferies estimated they were losing Rs 11 per litre on petrol and Rs 16 per litre on diesel, going by 15-day average pricing. The losses were lower than what was seen in the first quarter of FY27, so it's better than before, but still a loss.
The report also pointed to a sharp recovery in petrochemical margins. Average margins for polyethylene, polypropylene and polyethylene terephthalate (PET), all used in making plastics, were up 84% from February-end. But Jefferies specifically linked this benefit to Reliance Industries' oil-to-chemicals business, so it isn't a direct gain for BPCL.
Jefferies Sees 37% Upside In BPCL
Jefferies maintained a 'Buy' rating on Bharat Petroleum Corporation (BPCL), with a target price of Rs 410. That works out to about 36.66% upside from current levels of Rs 300. The view comes from looking at BPCL's earnings against the refining backdrop we just went through. Refining is getting the most support right now, while fuel selling is still a drag, and the call depends on how these two balance out.
Now the valuation. Jefferies' table puts BPCL at 8.8 times FY27 enterprise value to EBITDA, and 17.6 times FY27 price-to-earnings. In case these terms feel heavy, here's the simple version. Enterprise value is the total worth of a company including its debt. EBITDA is the profit it makes before interest, tax and a few other charges. Put one over the other and you get a rough idea of how expensive the business is compared to the operating profit it earns. Lower number, cheaper stock.
Price-to-earnings, or P/E, is easier. It tells you how much investors are paying for every rupee of profit. At 17.6 times, that's Rs 17.6 for each Rs 1 of expected FY27 profit.
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The more interesting part is what comes later. The same enterprise value to EBITDA multiple falls to 4.5 times by FY29. When a multiple drops like this, it usually means the earnings in the estimates are growing. So a stock at 8.8 times today looks a lot cheaper at 4.5 times two years down the line, if Jefferies' estimates hold up. That's the kind of picture a 'Buy' call leans on.
But estimates are just estimates. If refining margins cool off, or marketing losses stay heavy, the numbers in the table can change. So the 37% upside is Jefferies' view, not a promise.
What Investors Should Watch
The picture is mixed, and both sides are worth keeping in mind. Refining margins and fuel cracks are strong, while selling petrol and diesel is still loss-making, even if the losses are smaller. Anyone following the stock should keep an eye on how the marketing losses move along with refining margins, since both will shape earnings from here.