2 Oil And Gas Stocks That Motilal Oswal Has A “Buy” Call On

Broking firm, Motilal Oswal has suggested buying the stocks of Indian Oil and BPCL in its latest report on the oil and gas sector.

Why the buy rating on BPCL and Indian Oil?

According to Motilal Oswal, while oil marketing companies may lose market share to electric vehicles in the interim, the future remains bright if they continue to invest in the hydrogen ecosystem.

"We reiterate our Buy rating on Indian Oil Corporation, valuing the stock at 1.1x Dec'23E BV. We expect a FY23E/FY24E FCFF yield of 8.2%/9.5%. We reiterate our Buy rating on BPCL, valuing the stock at 1.8x Dec'23E BV. We expect a FY23E/FY24E FCFF yield of 7.3%/7.5%. Stabilization of the polyols complex at Kochi and widening of LtHv differential is expected to add to Kochi refinery gross refining margins," the brokerage has said.

Changing landscape

According to Motilal Oswal, transportation fuels are witnessing an ever-changing landscape. "It increasingly appears that electric vehicles would transition towards hydrogen fuel. As hydrogen is similar to the current fossil fuels in terms of transportation and dispensing, it would require investments and infrastructure like retail outlets, which only players like oil marketing companies can afford.

Very cheap on valuations

According to Motilal Oswal Financial Services, since the deregulation of diesel in 2010, OMCs have traded at average one-year forward P/BV of 1.1x/1.9x/1.2x for IOCL/BPCL/HPCL. Compared with that, IOCL/BPCL/HPCL are currently trading at 0.8x/1.6x/1x.

The stock of Indian Oil was last seen trading at Rs 119, while BPCL stock was trading at Rs 394.

Disclaimer

The above stocks are picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. As on date of the article, the author and his family do not own any of the stocks that are recommended in the above article