Oil marketing companies (OMCs) are likely to witness further reforms from the government on the back of lower crude oil prices and stable Indian rupee, said Motilal Oswal.

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The brokerage said, “Due to the worsening fiscal situation, receivables from the government appears to have more than doubled YoY in FY19, with Indian Oil Corporation (IOCL’s) receivables rising from INR90 billion in FY18-end to INR190 billion in FY19-end.”

With a call on OPEC production being lower than the current level and a lack of strong global economic growth, oil prices are likely to range between USD 60-70/bbl. Also, we expect low oil prices and stable rupee to result in the next phase of reforms for the OMCs, the report added.

Indian Oil Corporation (IOCL) is the top pick among the oil marketing companies (OMCs) for Motilal Oswal. It believes that its FY20-21 estimated free cash flow generation of Rs 23.6 per share along with dividend yield at ~5 percent is attractive.

It also added, " The polypropylene plant at Paradip and 5mmtpa Ennore LNG terminal has already been commissioned.” The brokerage house implied 27 percent upside on the stock with a target price of Rs 200 per share."

The brokerage also remained bullish on Bharat Petroleum Corporation Limited (BPCL) due to its strong tailwinds like the stabilization at Kochi refinery, and the possible final investment decision for the prolific offshore Area 1 in Mozambique. With a target price of Rs 479, it reiterated ‘buy’ on the stock with 24 percent upside.

In the case of Hindustan Petroleum Corporation Limited (HPCL), the brokerage house remained neutral saying, “Capex on the Rajasthan refinery and HMEL petrochemical plant could result in negative free cash flow. Also, there’s execution risk for the company with its Vizag expansion.”

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