4 Stocks From Oil & Gas Sector Preferred By Sharekhan

Sharekahn did a coverage report on the Q3FY2023 performance of the Oil and Gas Sector. Regarding the entire sector the brokerage has given a 'Neutral' view, yet has identified stocks of 4 companies that show strong positive and recommended buying it. The companies are Reliance Industries Limited, Indraprastha Gas Limited, Mahanagar Gas Limited, and Gujarat State Petronet Limited. Here are the details.

The Q3FY2023 performance for oil marketing companies improved as compared to H1FY23 losses, driven largely by gross revenue margins and gross marketing margins.The upstream public sector units' Ebidta witnessed a strong growth led by gas price hike, but the operational performance was mixed. It was in-line with oil and gas realisations, while sales volume missed brokerage estimates.

City gas distribution players' earnings sharply missed the brokerage house's estimates primarily due to weak margins; gas sales volume was also low given high spot LNG prices in Q3FY23.

Outlook

In terms of outlook Sharekhan sees that there would be a normailisation of international gas price ($4.5 to 6.5 per mmbtu) and domestically a likely cap could remove the gas cost overhang in near term for city gas distribution players. This would improve volume growth visibility (supported by widening of pricing gap between CNG versus petrol) and sustained margin recovery for city gas distributors and with high exposure to CNG.

In terms of valuation, Sharepkhan stated, "We thus, prefer Indarprasta Gas Limited (IGL) / Mahanagar Gas Limited(MGL) in city gas distribution space on expectation of earnings revival and valuation is also attractive (IGL trades at 16.3x FY25E EPS and MGL at 9.6x FY25E EPS). We prefer Relince Industries Limited among downstream players given strong growth outlook for consumer-centric business (retail and Jio) and likely further value unlocking in digital and retail businesses would add to shareholders' returns in the coming years. We prefer Gujarat State Petronet Limited among gas utilities, as they are a play on rising domestic gas demand and are available at attractive valuations."

Sharekhan has asked investors to buy stocks of these companies. Given below are the details.

Company Name	Sharekhan's update on estimates	Target Price (Rs/share)	Current Market Price (Rs /share)	Market Capitalisation (Rs in crore)
Reliance Industries Limited	Lowered our FY23-24 earnings estimate to factor higher depreciation and interest costs	3,050	2,369.10	16,02,811.30
Gujarat State Petronet Limited	Downward revised FY23 earnings estimates	342	277.85	15,676.61
Indraprastha Gas Limited	Fine-tuned our FY2023-FY2025 earnings estimates.	510	434.55	30,418.53
Mahanagar Gas Ltd	Fine-tuned FY23-25 earnings estimate to factor in 9MFY23 results.	1,010	877.65	8,669.23

Disclaimer:

The stocks have been picked from the brokerage report of Sharekhan, Greynium Information Technologies and the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.