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Buy This Navratna Stock For A Target Price of Rs 284 Says IIFL Securities

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Oil India Limited (OIL), a Navratna Corporation, is India's second-largest national oil and gas company, operating under the administrative jurisdiction of the Ministry of Petroleum and Natural Gas. The brokerage firm IIFL Securities has recommended buying the company's shares with a target price of Rs 284.

 

Investment rationale for OIL
 

Investment rationale for OIL

As per the brokerage "While Brent prices are near US$100/bbl, on the back of possible supply disruptions, SG benchmark GRMs have also moved up to US$7.4/bbl, as POL consumption normalises, and stocks are depleted. The sharp increase in input prices is reflected well in weak deltas: PE, PP and PVC are the weakest since past 8 quarters. The upstream companies should gain from strong oil; reset of APM prices (Q1FY23), is an event to monitor. The oil markets seem to be less worried on collapse in demand due to a sharp increase in prices. While upstream companies offer good trades on oil, OMCs can be seen as contrarian portfolio allocations."

"The PPAC has revised prices of APM gas/HPHT fields for 1HFY23 by 110%/62%, to US$6.10/US$9.92 per mmbtu. Gas price hike bodes well for OIL & RIL, which account for the bulk of domestic gas production in India. If oil holds at US$95/bbl (vs. base case US$80/bbl), FY23/24ii EPS for, OIL will see an upgrade of 24- 30% on unchanged cost structure, and offer good trading opportunities. The stock prices of OMCs will remain sensitive to the oil prices; revision in auto fuel prices post elections is one of the key triggers for the stock's re-rating," the brokerage has said.

IIFL Securities has claimed that "With the opening up of the economies post-Covid, the demand for crude is likely to stay elevated. With OPEC's supply growth likely to lag the demand growth of crude globally and the rising geopolitical tensions not reducing, we expect Brent to sustain at higher levels. Brent crude is trading at Rs 110/barrel, and this bodes well for Oil India. Even though there are no sanctions placed on Russian oil and gas, many companies have shunned Russian oil as there are high uncertainties regarding insurance, shipping, etc. Hence, we expect the crude prices to rise in the near term. The company's crude oil production is expected to increase to 3.6mmt in Fiscal 2023 and rise further to 4mmt by end of Fiscal 2024. This incremental production is to come from its existing production fields. The guidance for gas production is at 4bcm for Fiscal 2024 which would come from Baghjan."

Buy for a target price of Rs 284

Buy for a target price of Rs 284

IIFL Securities has claimed that "The demand for oil continues to be high as the economy recovers. With the supply side pressures due to the Russia-Ukraine war and OPEC supply growth likely to lag the global demand growth, the oil prices are likely to remain at elevated levels. The stock price of OIL is likely to be sensitive to oil prices, but with the revision of the auto fuel prices post the state elections is a key trigger for the stock's re-rating. If oil holds at US$95/bbl (vs. base case US$80/bbl), FY23/24ii EPS for OIL will see an upgrade of 24- 30% on unchanged cost structure, and offer good trading opportunities. With an attractive valuation of FY23 P/E at 3.10, OIL provides a good opportunity in turbulent times. Thus, we recommend a 'Buy' on the stock with a target of Rs 284 for a 12-month period."

Disclaimer

Disclaimer

The stock has been picked from the brokerage report of IIFL Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. 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.

Read more about: stocks to buy
Story first published: Thursday, April 21, 2022, 16:07 [IST]
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