7 Stocks From The Oil And Gas Sector On Sharekhan’s Buy List

Stocks from the oil and gas sector to buy according to Sharekhan

City gas distribution companies to do well

According to Sharekhan, the City gas distribution companies (excluding Gujarat Gas) are likely to report strong earnings growth y-o-y, led by sharp volume growth and strong margin and gas utilities (especially GAIL) would benefit from substantial improvement in profitability of gas marketing business and volume growth across segment.

"Oil marketing companies earnings performance is expected to be mixed as sharp recovery in refining & marketing margins would get largely offset by lower inventory gain, subdued refinery utilisation for HPCL and sequential moderation in petchem margin for IOCL. Upstream PSUs (ONGC and Oil India) are likely to report high earnings growth led by increase in oil price and lower operating cost. We expect Reliance Industries' (RIL) earnings to grow by 9% q-o-q led by mode," the brokerage has said.

Oil marketing companies to be a mixed bag

According to Sharekhan, oil marketing companies like IOCL, BPCL and HPCL core earnings will witness significant improvement as gross refining margins are on recovery mode (Singapore complex GRM up 76% q-o-q to $3.7/bbl) and diesel/petrol marketing margin expected to improve sharply to Rs. 5.6/Rs. 3 per litre versus only Rs. 4.1/Rs. 1 per litre in Q1FY22.

"However, on reported basis the performance would be mixed due to lower inventory gains q-o-q, weakness in HPDE margin on higher naphtha price for Indian Oil Corporation and subdued refinery utilisation for HPCL.

We expect IOCL/BPCL/HPCL PAT to witness -4%/30%/7% q-o-q earnings growth in Q2FY22. For Reliance Industries, we expect net profits to increase by 9% q-o-q to Rs. 13,324 crore led by modest growth in the oil to chemicals business as higher gross refining margins to get offset by lower petchem margin, decent performance by Jio supported by 4%/1% q-o-q increase in subscribers/ARPU to 460 million and Rs 140 per month respectively and strong q-o-q retail EBITDA growth led by demand recovery," the brokerage has said.

HPCL and BPCL preferred stock picks from the OMC space

"We prefer HPCL and BPCL among oil marketing companies given cyclical earnings recovery and potential re-rating on successful privatisation (expected by March 2022) of BPCL. We prefer GAIL and GSPL among gas utilities, as it is a play on rising domestic gas demand and is available at attractive valuations," the brokerage has said.

Disclaimer

The stocks recommended above are taken from the brokerage report of Sharekhan. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies Pvt Ltd, the author, and the analysts are not liable for any losses caused as a result of decisions based on the article. The above article is for informational purposes only.