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
Volatility in crude prices
Muted outlook for gross refining margins
Sustained strong demand for petroleum products in domestic market
Diesel, kerosene and LPG prices still under government control
Subsidy sharing pattern remained volatile
Gas supply concerns raised in the medium term
Rising demand-supply gap in the domestic gas market
Controlled gas prices
Uncertainty over regulations
The 10 stocks
|Company||Rating||CMP (Rs)||Target (Rs)||Upside (%)|
- Save upto Rs.2.67 lakh with Pradhan Mantri Awas Yojana ...Know more
- Now Save Rs.3150 on your Demat Account ...Click here
- Now get IIFL Personal Loan in just 8* hours...APPLY NOW!
- Get the most detailed result analysis on the web - Real Fast!
- Actionable & Award-Winning Research on 500 Listed Indian Companies.