India Oil & Gas – "10 stocks, 10 factors"

In this report, we pick 10 factors that we feel will have the maximum impact on the sector’s performance in the medium term.

January 01, 1970 5:30 IST | India Infoline News Service

Indian oil & gas sector has seen an eventful FY13 with hoards of announcements by companies and plenty of changes accorded by the government. While some companies have gained out of these, there are few who have borne the pain as well. External factors such as crude price movements, exchange rate fluctuations, sanctions on Iran, Euro Zone debt crisis and many more have played their part in increasing the volatility.

In this report, we pick 10 factors that we feel will have the maximum impact on the sector’s performance in the medium term. We provide an outlook on each of these variables and give an insight into their impact on the respective companies. Based on our findings, we have also furnished our investment view on 10 companies.

Our top picks include Cairn India (best proxy on crude prices, cheap valuations), Oil India (strong production growth, play on reforms, huge cash balance), ONGC (relative under valuation to global peers, play on reforms), BPCL (huge upstream value, less sensitive to vagaries of subsidy sharing), Petronet LNG (rising domestic gas demand, expectations of weak LNG prices) and GSPL (long term growth in gas supplies, attractive valuations). We have assigned Market Performer rating to Reliance Industries (core business of refining & petrochemicals still under pressure, KG-D6 volumes continue to fall), GAIL (risk to earnings from regulations, fall in petrochemical profitability if gas prices are raised), HPCL (high risk to earnings from subsidy sharing mechanism, high leverage) and IOC (limited upside potential).

The 10 factors
  1. Volatility in crude prices

  2. Depreciating rupee

  3. Muted outlook for gross refining margins

  4. Sustained strong demand for petroleum products in domestic market

  5. Diesel, kerosene and LPG prices still under government control

  6. Subsidy sharing pattern remained volatile

  7. Gas supply concerns raised in the medium term

  8. Rising demand-supply gap in the domestic gas market

  9. Controlled gas prices

  10. Uncertainty over regulations

The 10 stocks

Company Rating CMP (Rs) Target (Rs) Upside (%)
Cairn India BUY 298 360 20.8
Reliance Industries MP 848 930 9.7
Oil India BUY 547 638 16.6
ONGC BUY 325 365 12.5
BPCL BUY 397 460 15.8
HPCL MP 305 330 8.1
IOC MP 311 340 9.5
GAIL MP 346 365 5.6
GSPL BUY 66 80 21.4
Petronet LNG BUY 148 187 26.7
Source: Company, India Infoline Research

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