Lucknow Investment：HPCL Vs Indian Oil： Bonus Issues, Dividends, Which Super Maharatna PSU Oil & Gas Stock To Buy？

Brokerage Motilal Oswal sees leading oil marketing companies (OMCs) as the t way to play a range-bound crude oil price environment with rising downside risks. OMCs like HPCL, Indian Oil and BPCL have continued to strengthen their balance sheet, and Motilal estimates a consolidated ND-to-equity ratio of 1x/0.4x/0.6x for HPCL/BPCL/IOC in FY26. According, Motilal is recommending BUY on two OMCs.

These two leading OMCs that Motilal advised to buy are HPCL and Indian Oil Corporation (IOCL)Lucknow Investment. Of the two, HPCL is scheduled to pay bonus issue soon. While both hold a strong track record of paying bonus shares and dividends. Both the stocks have never carried sub-division.

Share Price: HPCL stock ended at Rs 536.25 apiece this week with a market cap of Rs 76,069.66 crore. YTD, the stock has surged by 34%. The stock is nearing its 52-week high of Rs 594.70 apiece, while it has more than doubled from its 52-week low of Rs 239.25 apiece.

Bonus Issue: HPCL is scheduled to reward bonus issue of 1:2 ratio for which it will turn ex-bonus on June 21, 2024. Earlier, the company rewarded 1:2 bonus shares in July 2017Surat Investment. Prior to that the company paid 2:1 bonus shares in September 2016.

Dividend: Since July 2000, the company has delivered up to 34 dividendsMumbai Wealth Management. Earlier, in 2024, the company paid interim dividend of Rs 15 per share. This dividend payout comes after zero dividends in 2023.

Fundamentals: As per Trendlyne data, the stock's Price to Earning Ratio is 4.75, lower than its sector PE ratio of 21.9. While its Return on Equity(ROE) for the last financial year was 34.13%, more than 20% in the last financial year, indicating an efficient use of shareholder's capital to generate profit. Further, Mutual Fund Holding increased by 0.89% in the last quarter to 14.99. However, Debt to Equity Ratio of 1.34 is higher than 1, implying that company assets are financed through debt.

BUY HPCL Share Price: Motilal Oswal said, "HPCL remains our preferred pick among the three OMCs. We see the following as key catalysts for the stock: 1) demerger and potential listing of lubricant business, 2) the commissioning of its bottom upgrade unit, and 3) the start of Rajasthan refinery in 4QFY25. We reiterate our BUY rating on the stock, valuing it at 1.4x FY26E P/BV to arrive at our TP of INR600."

Share Price: Indian Oil stock price is currently at Rs 170.30 apiece, with market cap of Rs 2,40,484.69 crore. The stock is nearing its 52-week high of Rs 196.80 apiece, while it has nearly doubled from its 52-week low of Rs 85.51 apiece. YTD, the stock is up by 31%.

Bonus Issues: Unlike HPCL, Indian Oil has not paid bonus shares since 2023. However, it has a higher record of rewarding free shares. The latest bonus issue by IOCL was of 1:2 in July 2022, following three bonus shares of 1:1 each in March 2018, October 2016, and October 2009. The first bonus issue by IOCL was of 1:2 in August 2003.

Dividend: Although, IOCL has not announced any bonus shares in 2024 so far, but it is scheduled to distribute final dividend of Rs 7 per share for FY24 for which it will turn ex-dividend on July 12, 2024. This will be in addition to interim dividend of Rs 5 per share for FY24. In FY23, the company paid up to Rs 3 per share dividendUdabur Stock. Since August 2001, the company distributed up to 39 dividends till date.

Fundamentals: Trendlyne data revealed that Price to Earning Ratio is 5.76, lower than its sector PE ratio of 21.9. Also, its Return on Equity(ROE) for the last financial year was 22.75%, more than 20% in the last financial year, indicating an efficient use of shareholder's capital to generate profit. Moreover, Mutual Fund Holding increased by 0.59% in the last quarter to 2.34. Notably, unlike HPCL, IOCL's Debt to Equity Ratio of 0.72 is less than 1 and healthy, implying that its assets are financed mainly through equity.

BUY IOCL: Motilal's note said, ": IOCL is set to commission various projects over the next two years, driving further growth. Refinery projects, currently under way, are expected to be completed as follows: Panipat refinery (25mmtpa) by Dec'25, Gujarat refinery (18mmtpa) by Oct'24, and Baruni refinery (9mmtpa) by Dec'24. We reiterate our BUY rating on the stock, valuing it at 1.3x FY26E P/B to arrive at our TP of INR195."

HPCL remains Motilal's top pick, followed by IOCL.

HPCL is one of the largest integrated Public Sector Undertaking, engaged in the business of refining Crude Oil and marketing of various petroleum products like Asphalt, Diesel, Kerosene, LPG, Lube Oils, Petrol, branded products like ATF (Aviation Turbine Fuel), Power, Turbojet, Naphtha, throughout India and at select foreign countries. Some of these products are exported to other countries.

IndianOil is a diversified, integrated energy major with presence in almost all the streams of oil, gas, petrochemicals and alternative energy sources; a world of high-calibre people, state-of-the-art technologies and cutting-edge R&D; a world of best practices, quality-consciousness and transparency; and a world where energy in all its forms is tapped most responsibly and delivered to the consumers most affordably.

Both the companies are Maharatna CPSEs.

Mumbai Stock Exchange