Indian oil refiners are in focus as the US steps up pressure on buyers of Russian crude. The latest sanctions could allow tariffs of up to 100 percent on major buyers, raising concerns over crude procurement costs and the earnings of Indian oil marketing companies.
While no direct ban or tariff has been imposed yet, any disruption in Russian crude supplies could increase replacement costs for Indian refiners. IOC, BPCL and HPCL have varying exposure to Russian crude, which could lead to different impacts on their earnings under a supply disruption scenario.
Sector outlook
US Sanctions on Russian Crude: US sanctions on Russian crude could increase pressure on Indian oil refiners if tariffs of up to 100 percent are imposed on major buyers of Russian crude. However, no direct ban or tariff has been imposed yet, making the actual impact dependent on future policy decisions.
Risk of Russian Crude Disruption: Any disruption in Russian crude supplies could force Indian refiners to replace discounted Russian barrels with crude from other sources. This could raise procurement costs, particularly if alternative supplies are available at higher prices.
Higher Replacement Cost: ICICI Securities estimates a replacement cost of $5 to $7 per barrel under a 25 percent to 50 percent Russian crude disruption scenario. The brokerage has used $6 per barrel as its base case for the replacement penalty.
Refining Margins Could Offset Impact: Higher crude costs could be partly offset by stronger refining margins. In particular, stronger diesel and jet fuel cracks could help Indian refiners absorb some of the additional cost of replacing Russian crude.
Government Policy Remains Key: Government fuel pricing and compensation policies could significantly affect the final earnings impact on Indian oil marketing companies. Any government intervention could determine how much of the higher crude cost is passed through to consumers.
Stock Specific Impact
Indian Oil Corporation Ltd
Indian Oil Corporation (IOC) is one of India’s major integrated oil and gas companies, with operations spanning refining, petroleum product marketing, pipelines, and petrochemicals. The company has a large refining and fuel marketing network across India. With a market cap of Rs 1,94,210 crore, the share of the company was trading at Rs 138 per share.
Indian Oil Corporation (IOC) has around 50 percent exposure to Russian crude, making any disruption in supplies relevant to its crude procurement costs. If Russian crude supplies decline by 25 percent to 50 percent, the company may need to replace part of these volumes with costlier crude from other sources.
Under ICICI Securities’ assumptions, the higher replacement cost could result in an EPS impact of around Rs 2.1 to Rs 4.2 per share for IOC. The actual impact could vary depending on the replacement cost, refining margins and any government fuel pricing or compensation measures.
Bharat Petroleum Corporation Ltd
Bharat Petroleum Corporation (BPCL) is a leading Indian oil and gas company engaged in refining, fuel marketing and distribution of petroleum products. The company operates across multiple segments of the energy value chain and has a significant presence in India’s fuel retail market. With a market cap of Rs 1,36,557 crore, the share of the company was trading at Rs 314 per share.
Bharat Petroleum Corporation (BPCL) has around 40 percent exposure to Russian crude, making its earnings sensitive to any disruption in these supplies. A 25 percent to 50 percent disruption could require BPCL to replace part of its Russian crude volumes with costlier alternatives.
Under ICICI Securities’ assumptions, the higher replacement cost could result in an EPS impact of Rs 2.9 to Rs 5.9 per share for BPCL. The actual impact would depend on replacement costs, refining margins and government fuel pricing or compensation measures.
Hindustan Petroleum Corporation Ltd
Hindustan Petroleum Corporation (HPCL) is a major Indian oil and gas company involved in refining, marketing and distribution of petroleum products. The company has operations across refining, fuel retailing, LPG and other energy-related businesses. With a market cap of Rs 76,601 crore, the share of the company was trading at Rs 360 per share.
Hindustan Petroleum Corporation (HPCL) has around 10 percent exposure to Russian crude, making it less exposed to any disruption compared with IOC and BPCL. A 25 percent to 50 percent disruption could require the company to replace part of its Russian crude volumes with alternative supplies.
Under ICICI Securities’ assumptions, the higher replacement cost could result in an EPS impact of Rs 1 to Rs 1.9 per share for HPCL. The actual impact would depend on replacement costs, refining margins, and government fuel pricing or compensation measures.
Conclusion
The impact of potential Russian crude disruption on IOC, BPCL and HPCL will depend on the extent of supply disruption, replacement crude costs, refining margins and government fuel pricing policies. ICICI Securities estimates different EPS impacts for the three companies based on their respective Russian crude exposure and assumed replacement costs.