Record margins ignite rally in standalone oil refiners

Mumbai: Oil refiners such as Chennai Petroleum Corp and Mangalore Refinery & Petrochemicals rallied 15% and 20%, respectively, on Tuesday as Singapore Gross Refining Margins touched a record high of $25.2 a barrel, indicating strong demand prospects for refiners globally.

Analysts said shares of standalone refiners such as Chennai Petroleum and MRPL are looking strong on technical charts and could potentially gain 10-15% more.

"Current GRMs are $25/barrel which is the highest that we have seen in the past few years," said Hemang Jani, head of equity strategy- broking and distribution at Motilal Oswal.

GRMs is the amount that refiners earn from turning every barrel of crude oil into refined fuel products. The Asian benchmark touched new highs on the back of rising demand for refined products globally.

Chennai Petroleum Corporation gained 14.7% to close at ₹368.50 and Mangalore Refinery & Petrochemicals closed 19.7% higher at ₹108.35.

However, other refiners didn't gain as much. Indian Oil Corporation ended up 0.5% at ₹118.10 and Bharat Petroleum Corporation gained 0.28% at ₹320.30. Hindustan Petroleum Corporation's shares ended up 1.25% at ₹230.60. Reliance Industries ended up 0.2% at ₹2,772.50. The stock has gained 10% in last one month.

"Standalone refiners would gain the most in the short term. The companies which also have a marketing outfit tend to lose out on the marketing margins part. So the positive reaction is not that large for companies such as IOC, BPCL and HPCL," said Jani.

The gains in standalone refiners are likely to continue due to strong GRMs, he said.

Shares of Chennai Petroleum have gained nearly 30% in the last one month while Mangalore Refinery's shares are up 47% in the same period.

In the March quarter, Chennai Petroleum reported a four-fold jump in March quarter profit to Rs 1,002 crore and MRPL reported a standalone profit of Rs 3,008 crore for the March quarter as against Rs 268 crore profit in the same period last year.

Chennai-based investor Dolly Khanna purchased 0.67% stake in the company worth Rs 26.3 crore through open market purchase at Rs 263.15 per share on April 28. Chennai Petroleum Corporation's shares have gained 236% in the last three months.

“Chennai Petroleum and MRPL could rally 10-15% more from here given the chart structure,” said Rajesh Palviya, head-technicals and derivatives at Axis Securities.

Citi sees RIL as a big beneficiary of the rising GRMs.

“Recent data points suggest that crude oil imports from Russia might have risen to over 15% of India's total imports versus 1-2% historically,” said Citi in a note to investors.

“RIL remains the clearest beneficiary of the ongoing tightness in refining given its superior complexity, high product export ratio, and relatively minor domestic retail operations, with potential added benefits from sourcing discounted crudes, which should keep near-term earnings momentum strong,” said Citi.