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 FY24 is turning out to be the best year in terms of earnings for oil marketing companies despite the upcoming general elections.

“We raise our earnings estimates by 8-50 per cent for FY24-26, with BPCL seeing the highest upgrade followed by HPCL and IOCL. Under this scenario, FY24/FY25 dividend yield would be 9-12 per cent / 5-7 per cent; although post the election season, we believe the outlook would improve,” Emkay Global Financial Services said in a report.

“We reiterate BUY on BPCL and upgrade HPCL and IOCL to BUY from Hold. Recent media reports revisiting the government’s capital infusion plans and HPCL’s aim to double EBITDA in the next five years add up to the positive sentiments,” it said.

The macro environment w.r.t. oil prices, currency and refining margins has been favorable and a feared cut in auto-fuel RSPs has also not materialized so far. While a cut may still happen, particularly between the state and national elections, the impact should not be more than 4-5 months.

After a robust H1, H2 so far has been better than expected for OMCs, except for some intermediate inventory losses likely in Q3, if oil prices stabilize at USD80-85/bbl, which would, however, mean strong core earnings in Q4, the report said.

HPCL’s management has guided for more than 2x jump in EBITDA by FY28E as it commissions Vizag’s expanded capacity as well as the Barmer project. Management also indicated that standalone debt has crossed peak levels, while consolidated debt is nearing its peak. The Rs 300 billion budgeted capital infusion through rights issue, etc., may also be under works as per recent media reports. Any kind of capitalization would improve the balance sheet of OMCs and we view it positive for the companies, the report said.