Motilal Oswal Picks 2 Oil & Gas Stocks, Recommends Buy, Sees High Upside Potential

Motilal Oswal has come up with Buy on two stocks from Oil & Gas stocks namely Reliance Industries Ltd. (RIL) and Indian Oil Corporation Ltd. (IOCL). RIL is a private sector conglomerate operating, whereas IOCL is a Maharatna status PSU company. Both are large cap companies operating in the Oil & Gas sector.

Refined product supply to outpace demand growth

According to Motilal Oswal, IEA expects net global refining capacity to expand 4.4mnbopd during CY22-28, far exceeding demand growth, thereby leading to a spare capacity of 8mnbopd in CY28. Over the past 50 years, transportation fuels have been the key drivers of refined product growth. However, oil demand from global transportation is likely to peak in CY26 led by improved ICE vehicle efficiencies and increased penetration of EVs. Share of EVs in new car sales is projected to rise to 25% in CY28 from 14% in CY22. Refined product demand is expected to be further hit by growing supply of nonrefined products such as NGLs, bio-fuels, and CTLs. Share of refined products in total liquid demand is expected to decline to 82.5% in CY28 from 83.3% in CY22. Oversupply may lead to a glut of refined products in global markets that may weaken refining margins structurally over the medium term. "We assume a GRM of USD5.0/bbl for IOCL and HPCL, USD5.5/bbl for BPCL and USD6.0/bbl for MRPL from 2QFY24. These assumptions, however, would change with the intake of discounted Russian crude," the brokerage has said.

Reliance Industries Ltd. (RIL)

According to Motilal Oswal, While upstream production is expected to increase to 30mmscmd in FY24 from 19mmscmd in FY23, concerns remain on refining and petrochem margins going forward. "Using SOTP, we value the Refining and Petrochemical segments at 7.5x EV/EBITDA, arriving at a valuation of INR879/share for standalone business. We ascribe an equity valuation of INR800/share to RJio and INR1,354/share to Reliance Retail and adjust for standalone debt to arrive at our TP of INR2,800. Reiterate BUY," the brokerage has said.

Stock Price, Returns, Potential Upside, and Market Capitalksation

The stock is showing 12% potential upside, considering if you buy the stock at the current market price. The stock last traded at Rs. 2,514.75 apiece.

The stock declined 2.43% in a week. It jumped 2.02% in 1 year. While, in the past 3 years, it gave 46.13% and 148.37% in the past 5 years, respectively.

The stock traded the 52 week high is Rs. 2,755 apiece and 52 week low is Rs. 2,180 apiece, respectively. Its market valuation is Rs. 17,01,503 crore.

Indian Oil Corporation Ltd. (IOCL)

According to the brokerage, IOCL is set to commission various projects over the next two years, driving growth further. Refinery projects, currently underway, are likely to be completed as follows: Panipat refinery (25mmtpa) by Sep'24, Gujarat refinery (18mmtpa) by Aug'23, and Baruni refinery (9mmtpa) by Apr'23, according to the earlier guidance. "IOCL is likely to be hit the most among its peers from a decline in refining margin. We value the stock at 0.9x FY25E P/BV to arrive at our TP of INR112. Reiterate BUY," the brokerage has said.

Stock Price, Returns, Potential Upside, and Market Capitalksation

With the given target price of Rs. 112, the stock is likely to give up to 26% return. The stock last traded at Rs. 89.30 apiece on NSE, down 2.93% from the previous close.

The stock has fallen 3.09% in the past 1 week. It has given 24.84% positive return in 1 year and 49.92% in 3 years, respectively. It has given 21.21% negative return in the past 5 years.

Its 52 week high is Rs. 93.70 apiece and 52 week low is Rs. 65.20 apiece, respectively. The stock has a market capitalisation of Rs. 1,26,102 crore.

Disclaimer - Above mentioned two Oil & Gas sector stocks have been picked from the brokerage report of Motilal Oswal Financial Services. Greynium Information Technologies, 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.