India Energy HPCL BPCL Tough 1Q

Equity Research 24 July 2026 | 9:22AM SGT

HPCL/BPCL: Tough 1Q; Higher oil prices again top of mind, but not fully priced into shares; remain Neutral

HPCL and BPCL’s 1Q results were mixed, reporting earnings miss and beat Nikhil Bhandari | respectively, as the latter reported significantly stronger refining margins. HPCL’s 1Q Goldman Sachs (Singapore) Pte loss represented ~20% of FY26 book value. The divergence in strong refining print at Randy Lau BPCL vs HPCL was potentially due to (1) higher mix of discounted Russian crude | Goldman Sachs (Singapore) Pte which constituted ~38% of BPCL’s procurement in 1Q besides new grades from Venezuela and Angola, (2) higher crude inventory losses at HPCL due to significant inventory holding at the end of 1Q which coincided with a sharp decline in oil prices, vs near normal crude inventory holding (~35 days) for BPCL, and (3) weaker refining capture at Vizag refinery of HPCL as the residue upgradation unit faced technical challenges alongside locational disadvantage resulting in higher crude premiums and crude inventory requirement.

We believe upside risks to oil prices (escalating geopolitical tensions) and further downside risks to marketing margins in coming quarters are again top of mind for investors. Our Commodities team sees two-sided oil price risks but skewed to the upside on net, especially in the near term where Brent could exceed US$120/bbl in Dec’26 quarter and average US$100/bbl in CY27 if Hormuz remains disrupted through CY27, with further upside if the Bab-al-Mandab Strait and Suez are also permanently disrupted. On the other hand, Brent might decline to the low US$60s by end-CY27 if supply exceeds our expectations and demand losses prove more persistent.

At current oil prices, our weekly EBITDA tracker suggests integrated refining and marketing earnings are likely back in negative territory. We estimate HPCL and BPCL shares are already pricing in a normalization of integrated margins assuming mid-cycle multiples. We do not see a compelling risk reward with 44%/46% up/downside in our bull / bear case scenarios on average for HPCL/BPCL. We cut estimates further in the near term, remain below Bloomberg consensus for FY27E EBITDA and broadly maintain our medium-term assumptions for both marketing margins (assumes normal margins by FY29E) and refining margins (above mid-cycle margins through FY29E). Remain Neutral rated on HPCL and BPCL.

Risk reward for HPCL/BPCL still not favourable; lower earnings and TP; remain Neutral We lower our FY27E-29E EBITDA forecasts especially for FY27E, mainly marking to

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market weaker-than-expected marketing margins in 1Q (partially offset by higher refining margins for BPCL). Overall, we lower our FY28E based 12-month target prices for HPCL and BPCL by 7% and 1% respectively, mainly marking to market the higher FY27E net debt with lower earnings. We continue to value HPCL/BPCL on a SOTP basis, based on 6.5x FY28E EV/EBITDA to value the refining, marketing, petchem and pipeline businesses (assumptions unchanged).

Exhibit 1: We do not see a compelling risk reward with 44%/46% up/downside in our bull/bear case scenarios on average for HPCL/BPCL Bear Base Bull Below normal marketing Below normal marketing Normal marketing margins margin, upcycle refining margins and refining margins and upcycle refining margins margins (FY28E)

HPCL Implied Value (Rs) Theoretical upside/downside -57% -16% 38% Implied P/B 0.7X 1.2X 1.9X Core GRM (US$/bbl) $7.3 $9.3 $11.2 Core net marketing margin 1.1 1.3 1.9 Target multiple 6.5X 6.5X 6.5X

BPCL Implied Value (Rs) Theoretical upside/downside -34% 16% 50% Implied P/B 0.9X 1.5X 1.9X Core GRM (US$/bbl)…