There is no stopping for the Indian equities which have now clinched levels of above 55,000 on the Sensex and hit over 16,500 points on the Nifty. Broader markets are however seeing some pressure. Now as technicals and experts suggest of a short term bullish outlook, here are two HDFC Securities' bets for gains up to 29%.
Oil India: Buy For Over 20% Upside
HDFC Securities gives a ‘Buy' rating on the stock of oil drilling and exploration major, Oil India for a price target of Rs. 200, implying an upside of over 20% from the last traded price of Rs. 166.35 per share.
|Oil India last traded price||Rs. 166.35|
|Target price||Rs. 200|
|Potential gains||> 20%|
The rationale as specified for the ‘Buy' on the scrip is suggested to be the following by the brokerage firm:
(1) increase in crude price realisation and
(2) improvement in domestic gas price realisation (at USD 2.5/mmbtu). We expect oil price realisation to increase to ~USD 59/bbl in FY22E and USD 61/bbl in FY23E vs. USD 44/bbl in FY21, given the expected global economic rebound, post COVID.
Revenue and RPAT below estimates for Q1FY22; EBITDA Higher
Revenue was not in line with estimates and came in lower while EBITDA was a tad higher due to lower than expected crude realization but lower operating expenses. PAT at the firm also came in lower due to lower other income and higher depreciation and interest cost.
Brokerage further lists out key call highlights:
• The standalone Capex budget for FY22 is Rs. 41bn and consolidated Capex is Rs. 55bn.
• The company aims to reach 5mmscmd gas production from Baghjan field by FY24.
• The NRL refinery expansion to 9mmt will be complete by FY25. Capex for the expansion has been revised higher to Rs. 280bn from Rs. 220bn.
• Debt outstanding as on Jun'21-end is Rs. 140bn, cash and cash equivalents plus investments are Rs. 18bn.
HDFC Securities values Oil India's standalone business at Rs. 115 (6.0x Mar-23E EPS) and its investments at Rs. 85. The stock is currently trading at 2.8x FY23E EPS
Indraprastha Gas: Buy For Over 29% Gains
HDFC Securities has maintained its previous ‘Buy' rating on the scrip pf Indraprastha Gas for a target price of Rs. 691, meaning a potential upside of 29.12% from the last traded price as on the closing of August 13, 2021 of Rs. 535.15.
|Indraprastha Gas last traded price||Rs. 535.15|
|Target price||Rs. 691|
Rationale given for a ‘buy' on Indraprastha Gas
As per the brokerage firm the company is witnessing robust volume growth on the back of its quasi-monopolistic position in Delhi/NCR with regulatory support being extended as prioritised gas allocation. Also, the ‘Buy' is premised on the portfolio of mature, semi-mature and new geographical areas (GA).
Q1FY22 not so impressive
Being weighed down by weak sales volume, higher than expected gas cost as well as operating expenses but a better than expected other income, both EBITDA and profitability at the company suffered. Volume came in lower QoQ as CNG and industrial/commercial demand saw an impact due to the Covid 19 second wave.
On the volume estimates, HDFC Securities in its report said "We estimate CNG volume to increase by 24% YoY in FY22E and 18% YoY in FY23E. Total volume is estimated to increase by 21% YoY in FY22E and 17% YoY in FY23E". "Per-unit EBITDA is expected to correct by 6% YoY to Rs. 7.2/scm in FY22E on account of higher gas cost. Subsequently, per-unit EBITDA should improve to RS. 7.7/scm in FY23E (+8% YoY). Consolidated EBITDA should grow by 13% YoY in FY22E to RS. 17bn and 26% YoY in FY23E to RS. 21bn, driven by improvement in volumes, positive outlook, and healthy per-unit margin", added the brokerage report.
Based on the discounting cash flow (DCF) mode, the brokerage suggest a target price of Rs. 691 (WACC 9%, terminal growth rate 3.0%). The stock is trading at 22.3x FY23E PE.
The stocks listed in the report are taken from brokerage report of HDFC Securities and should not be construed as investment advice. Equities are at record high and extreme cautiousness is needed before taking any call.