BPCL & HPCL: Is the Market Ignoring a Fuel-Fired Earnings Rebound in FY26?

Is the Street Missing the Real Story on BPCL and HPCL?

BPCL HPCL stock outlook FY26: Are investors too focused on the past and ignoring the turnaround ahead?

Public sector oil marketing companies (OMCs) like BPCL (Bharat Petroleum Corporation Ltd) and HPCL (Hindustan Petroleum Corporation Ltd) have lagged behind their private counterparts and the broader market in recent months. Blame it on volatile crude oil prices and massive LPG under-recoveries that spooked investors. But as we step into FY26, a set of powerful tailwinds—across crude pricing, refining economics, and marketing margins—are quietly building up.

Our thesis: The BPCL HPCL stock outlook for FY26 looks significantly brighter, with margin expansion and earnings visibility driving a possible re-rating. Below, we explore the three big trends the market might be underestimating.

What’s Driving the BPCL HPCL Stock Outlook FY26?

Crude oil prices have moderated sharply. The average crude basket for Q1 FY26 is hovering around $65/barrel, down from $75 in Q4 FY25. This $10/barrel drop directly benefits OMCs: every $1 drop improves marketing margins by ₹0.55/litre.

But that’s not the only macro boost. Several global refinery shutdowns (especially in Europe and parts of Asia) have tightened supply and lifted gross refining margins (GRMs). Singapore GRM—a key industry benchmark—has surged to $8.37/barrel, well above the historical average.

For BPCL and HPCL, which together refine over 50 million tonnes annually, this could translate to a multi-thousand crore windfall in refining profits—something not yet reflected in their current valuations.

Fuel Marketing Margins at Decade Highs

Auto fuel marketing margins—on petrol and diesel—are currently at some of their highest levels in the last decade. While the FY25 average stood at around ₹6.6/litre, the year-to-date (FY26) average is already at ₹9.6/litre, a full 45% higher.

For context, margins were around ₹12/litre in May 2025—nearly 3x the long-term average of ₹3.5/litre.

While there’s always a risk that the government tweaks excise duties to manage inflation, the strong buffer gives OMCs room to absorb such shocks. Even after adjusting for conservative margins, HPCL and BPCL could post 20–30% earnings growth in FY26—a sharp contrast to the flat-to-declining performance in FY24.

LPG Losses Narrowing: ₹21,000 Cr Saved

One of the biggest drags on OMCs in FY24 was the ballooning LPG under-recoveries. At their peak, these losses had surged to over ₹41,300 crore. But FY26 tells a different story.

The government implemented a ₹50 per cylinder price hike in April 2025, and international LPG prices have softened since. Result? Expected under-recoveries for FY26 are now just ₹20,000 crore—a 50% reduction year-on-year.

This not only improves cash flow for BPCL and HPCL, but also signals a shift in government policy. Rather than forcing OMCs to bear the full fiscal burden, the new approach seems to allow for a more balanced cost-sharing structure—a big positive for stock valuations.

BPCL HPCL Stock Outlook FY26: Company Snapshot

Before diving into stock outlooks, it’s important to assess the financial health and valuation comfort of BPCL and HPCL. Despite past challenges, their fundamentals are not only intact but improving.

BPCL

• Price-to-Earnings (P/E): ~11x FY25 earnings
• Dividend Yield: ~5%
• Debt-to-Equity (D/E): 0.75
• FY25 PAT: ₹13,275 crore
• CMP (as of June 2025): ₹333.85

BPCL’s robust profit and healthy yield make it attractive for both value and income investors. The moderate debt levels offer further comfort amid volatile macro cycles.

HPCL

• P/E: 13.1x
• Dividend Yield: 2.5%
• D/E: 1.73 (significantly higher due to capex-heavy phase)
• FY25 PAT: Down 57% YoY, though Q4 FY25 showed signs of a turnaround

HPCL looks more stretched on leverage and valuation, but its long-term capex (especially the Barmer refinery) could yield results by FY27, suggesting possible back-ended upside.

Stock Performance: Rising Yet Underappreciated?

Despite improving earnings visibility, BPCL and HPCL have not yet caught up to their intrinsic potential. Still, the market is beginning to take note.

• BPCL has gained 29% in the last 3 months, outperforming the Nifty and sectoral indices. The breakout has been backed by strong volumes, especially after crude prices dropped below $70.
• HPCL is up 24% in the same period, though its technicals still show relative weakness, with resistance near ₹480 and lower RSI strength.

While short-term volatility driven by crude prices and global cues continues, the long-term trend is turning constructive, especially for BPCL. High trading volumes post crude correction hint that institutional interest is building quietly.

Peer Comparison: Still Attractive on Valuations

A peer comparison brings clarity on how BPCL and HPCL stack up in terms of risk-reward.

• IOCL (Indian Oil Corporation) trades at a cheaper P/E of ~5.75, but its earnings mix leans heavily on marketing (vs refining) and capex visibility remains limited.
• BPCL, at 11x, looks fairly priced given its cleaner balance sheet and better dividend yield.
• HPCL, despite a higher 13.1x P/E, is pricing in weak FY25 earnings. However, its leverage and capex intensity continue to be an overhang.

When compared to private players:

• Nayara Energy remains unlisted, and RIL’s refining segment is buried under its conglomerate structure.
• BPCL emerges as a better pure-play refining and marketing proxy with state ownership, decent cash flows, and dividend visibility.

In summary, BPCL is arguably the better-positioned OMC among listed names, while HPCL may appeal more to risk-tolerant, contrarian investors betting on a FY26–27 turnaround.

Brokerage Views: Mixed but Turning Constructive

Broker sentiment has slowly started shifting as crude prices fall and GRMs rise.

• Antique Broking remains bullish on both BPCL and HPCL, forecasting 60%+ upside potential if margins sustain and under-recoveries remain capped.
• Nuvama and Prabhudas Lilladher (PL) are cautious on HPCL, citing high leverage and potential delays in the Barmer refinery project as key risks.
• However, both firms acknowledge that bottom-up earnings upgrades are likely if refining margins remain above $7/bbl and marketing margins stabilize.

The consensus: Risk-reward is improving, especially for BPCL. HPCL may need stronger signals on debt reduction and project completion timelines before the Street fully re-rates the stock.

Government Policy Lens: Excise, Subsidy, Capex

A key layer in evaluating the BPCL HPCL stock outlook FY26 is government policy—especially around pricing, excise, and capital expenditure.

The government is clearly walking a tightrope:

• On one hand, it wants to keep inflation under control, which limits the scope for consumer price hikes.
• On the other, it also seeks fiscal discipline ahead of FY26 Budget targets and potential global credit ratings reviews.

The April 2025 excise duty hike—though moderate—has helped the Centre capture part of the OMC margin windfall without imposing direct price controls. This indicates a subtle policy shift: encouraging OMCs to operate more market-driven and less as fiscal shock absorbers.

Capex policy, especially for HPCL, remains under the spotlight. Projects like the Barmer refinery are key to future profitability, but timelines and cost control will be crucial to avoid dragging down return ratios.

Key Risks to Watch

While the setup for FY26 looks strong, investors should be aware of the following risks:

• Crude Oil Spikes: A sudden rally—like the 4% jump in early June 2025—can compress both refining and marketing margins, especially if it sustains.
• Populist Policy Moves: If inflation picks up, the government may cap fuel prices again, hurting OMC profitability.
• Capex Execution: Particularly for HPCL, delays or cost overruns in key projects like Barmer could weigh on both earnings and sentiment.

Conclusion: Should You Bet on a Re-rating?

The setup for FY26 is unique:
✔️ Peak marketing margins
✔️ Softening crude oil prices
✔️ Sharp drop in LPG under-recoveries

Together, these trends could lead to an EPS explosion, especially if GRMs remain firm and the policy backdrop stays predictable.

BPCL stands out for its:

• Lower debt load
• Higher dividend yield
• Stronger price momentum
• Cleaner balance sheet

HPCL offers higher upside, but also higher risk—its leverage and project execution will be closely watched in coming quarters.

Bottom Line:
This may be the best setup for OMCs in years. For investors with a 6–12 month view, BPCL offers a cleaner, lower-risk path to participate, while HPCL could be a high-beta play if you’re willing to stomach the volatility.

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FAQs

▸ What is driving the bullish outlook for BPCL and HPCL in FY26?

Lower crude oil prices, record fuel marketing margins, and reduced LPG losses are key tailwinds.

▸ How does crude price impact OMC margins?

Every $1/bbl drop improves margins by around ₹0.55/litre for BPCL and HPCL.

▸ Are LPG subsidies still a major concern?

No, under-recoveries have halved—from ₹41,300 Cr in FY25 to an estimated ₹20,000 Cr in FY26.

▸ What’s unique about BPCL vs HPCL right now?

BPCL has lower debt, better price momentum, and higher dividend yield.

▸ Why are fuel marketing margins important?

They are at decade highs (~₹12/litre), significantly boosting OMC earnings.

▸ What are the key risks to this outlook?

Crude price shocks, government policy swings, and execution risks in HPCL’s capex plans.

▸ Is the government interfering less in pricing now?

Yes, recent policy changes suggest a more market-driven approach with strategic excise hikes.

▸ Are brokerage houses bullish on these stocks?

Antique sees 60%+ upside; others are cautiously optimistic, especially on BPCL.

▸ How do BPCL and HPCL compare with IOCL and private peers?

They trade at a premium to IOCL but offer better margin outlook and policy tailwinds.

▸ Is FY26 the right time to buy OMCs?

If trends hold, FY26 could be a breakout year for re-rating in OMCs—especially BPCL.

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