Summary of Conference Call Notes Industry Overview - **Industry**: Fuel Refining in Asia Pacific, specifically focusing on India and China - **Key Trends**: China's Anti-Involution drive is seen as a catalyst for a golden age in fuel refining, with India positioned as the fastest-growing fuel market globally due to hardware upgrades in refineries [1][2] Core Insights - **Refining Margins**: Asian refiners have maintained above mid-cycle profitability, with expectations for higher margins and lower volatility as China's fuel exports decline. The potential rationalization of over 20-year-old fuel capacity in China could impact approximately 3% of global fuel demand [1][2] - **Operating Profits**: In fiscal year 2025, Indian Oil Marketing Companies (OMCs) reported operating profits of US$10.4 billion, despite absorbing US$5 billion in cooking gas losses. This was achieved with adjusted feedstock prices at US$76 per barrel [2] - **Government Intervention**: Oil prices in the range of US$65-70 per barrel are favorable for OMCs, as current margins are necessary to incentivize new investments and attract foreign capital. Integrated margins are expected to be US$4-5 per barrel above pre-COVID levels, leading to potential upgrades in street estimates by 15-20% [3][4] - **Crude Discounts**: India has sourced 35-40% of its crude from Russia at discounts of US$2-5 per barrel. Despite concerns over sanctions, India's diversified crude sourcing strategy provides flexibility [4] Investment Opportunities - **Preferred Stocks**: Hindustan Petroleum Corporation Limited (HPCL) is highlighted as a preferred investment due to its leverage from rising oil supply and hardware upgrades. Bharat Petroleum Corporation Limited (BPCL) is also favored for its strong balance sheet expected to surprise in 2026 and 2027 [5][6] - **Market Positioning**: OMCs with a higher penetration of retail stations are better positioned to defend market share against private competitors amid healthy domestic consumption growth [2][5] Additional Insights - **Fuel Demand**: India's fuel consumption is projected to grow, with gas demand expected to outperform oil demand growth. The market share of private players in key fuels has intensified over the last two years [54][56] - **Refinery Capacity**: New refinery projects are facing delays, with an estimated net supply increase of 0.5 million barrels per day expected as new capacities are completed [17][18] - **Valuation Metrics**: Indian OMCs trade at lower multiples compared to global peers, indicating potential undervaluation. HPCL's price target is set at Rs516 per share, with a bull case of Rs676 and a bear case of Rs333 [68][69][81] Risks and Considerations - **Market Volatility**: The potential for increased competition from private players and fluctuations in crude prices pose risks to OMCs' margins and profitability [5][88] - **Government Policies**: Changes in government subsidies and price control regimes could impact OMCs' operational margins and market dynamics [50][52] This summary encapsulates the key points from the conference call, focusing on the fuel refining industry, particularly in India, and highlights investment opportunities and risks associated with the sector.