It’s been a good June quarter for the public sector oil marketing companies – Indian Oil, HPCL and BPCL. Indian Oil’s profit rose 26 per cent year-on-year while that of HPCL and BPCL increased 30 per cent and 11 per cent respectively. The good growth in the bottomline was despite a dip in the companies’ gross refining margin (GRM) – the difference between the price of the product basket and the cost of crude oil. The GRM of Indian Oil fell to $9.98 a barrel in the recent June quarter from $10.8 in the year-ago period; the fall was steeper for HPCL (to $6.8 from $8.6) and BPCL (to $6 from $8.6).

Inventory gains – thanks to the crude oil price trending up during the quarter - helped profit growth of the refiners. HPCL, for instance, posted inventory gains of about Rs 1,100 crore in the June quarter compared with Rs 600 crore in the year-ago period. Indian Oil’s inventory gain more than doubled to about Rs 7,500 crore. BPCL, too, recorded inventory gains of over Rs 1,000 crore during the quarter. Refining margins, while down from a year-ago, were still reasonable. This, combined with growth in sales volumes, aided profit growth.

The BPCL stock has lost about 3 per cent since the results were declared on Wednesday. HPCL slipped sharply last week after the results but has recouped losses since. The Indian Oil stock has gained somewhat over this week after the results were declared on Monday. The bonus share issue announcements by Indian Oil (1 for 1) and HPCL (2 for 1) seem to have aided sentiment for the stocks. BPCL announced its bonus share issue (1 for 1) along with its March quarter results.

All the three stocks have had a strong run over the past year, gaining between 40–55 per cent, and valuations are above three-year averages. The current weakness in the refining market may cap further upsides in the near-term. But the favourable pricing environment thanks to reforms and expansion plans in a growing market should work in favour of the stocks in the long run.

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