These 10 Quality Stocks From Oil & Gas Space Showing Upside Potential, Motilal Oswal Assigns Buy

Leading brokerage firm Motilal Oswal has picked Castrol (India), GAIL (India), Gujarat Gas, Gujarat State Petronet, Indian Oil Corporation, Mahanagar Gas, Oil India, Oil and Natural Gas Corporation (ONGC), Petronet LNG, and Reliance Industries Limited (RIL) with buy Rating in its December 2022 Result Preview. Here are the key takeaways about the stock:

Stocks' Name, Rating and Target Price

Sr. No.	Name of Stock	Rating	Target Price
1	Castrol (India)	Buy	Rs 147
2	GAIL	Buy	Rs 115
3	Gujarat Gas	Buy	Rs 679
4	Gujarat State Petronet	Buy	Rs 341
5	IOC	Buy	Rs 99
6	Mahanagar Gas	Buy	Rs 1004
7	Oil India	Buy	Rs 256
8	ONGC	Buy	Rs 200
9	Petronet LNG	Buy	Rs 282
10	Reliance Industries	Buy	Rs 2957

1. Castrol (India)

With Rs 147/share target price, the stock is likely to give 19% return. It is trading at Rs 124/share. It has fallen 0.24% in 1 year.

According to the brokerage, Forecast volumes at 48m liters (-8% YoY/+1% QoQ). Expect realization of ~INR243.5/liter (+15% YoY/+2% QoQ) during the quarter. Expect EBITDA margin to be flat YoY as higher input costs offset improved realization. Operating margin expansion, product launches, and OEM tie-ups remain the key monitorables.

2. GAIL (India)

With Rs 115/share target price, the stock is likely to give 20% return. It is trading at Rs 96.15/share. It gave 12.12% in 3 years.

According to the brokerage, Expect transmission volumes of 110mmscmd (-4% YoY/+2% QoQ), with EBITDA/scm up 3% YoY and down 12% QoQ. A recovery in demand from Power, Refining, and Petchem sectors to drive growth post-normalization of spot LNG prices in FY23E. Expect petchem volumes of ~110kmt, with realizations up 21% YoY and down 6% QoQ. Update on plans to replace gas supply shortfall from Gazprom will be the key monitorable.

3. Gujarat Gas

With Rs 679/share target price, the stock is likely to give 20% return. It is trading at Rs 450.30/share. It gave maximum 147.27% in 5 years.

According to the brokerage, Expect volumes at 7.6mmscmd (-33% YoY, flat QoQ) as industrial customers continued to prefer alternate fuels. Expect EBITDA margin at INR5/scm (+122% YoY, -45% QoQ) due to price cuts taken at Morbi. Normalization in spot LNG prices after 3QFY23 remains a key near-term monitorable. Growth in CNG and commissioning of gas supply in newer GAs remain crucial for volume growth.

4. Gujarat State Petronet

With Rs 341/share target price, the stock is likely to give 26% return. It is trading at Rs 271.15/share. It has given maximum 23.71% in 5 years.

According to the brokerage, Expect transmission volumes of ~27mmscmd (-16% YoY/- 9% QoQ) due to higher spot LNG prices. While high spot LNG prices would hit volumes in near term, the prices are expected to taper off in the longer term that would increase the volumes. EBITDA/mscm expected to increase 28% YoY led by higher implied tariff at INR1,658/mscm (up 23% YoY, flat QoQ). Commissioning of Phase II of Mehsana-Bhatinda pipeline and further expansion/debottlenecking of three pipelines connecting three LNG terminals (in Gujarat) remain the key.

5. Indian Oil Corporation (IOC)

With Rs 99/share target price, the stock is likely to give 21% return. It is trading at Rs 82.10/share. It has given 1.47% in 1 year.

According to the brokerage, Expect refinery throughput of 18mmt (+3% YoY / +12% QoQ), led by ramp-up in the utilization at its refineries. Expect reported GRM at USD15.1/bbl, with gross marketing margin at INR1.7/liter. Petchem segment to be subdued as well as PE/PP cracks continue to decline on a sequential basis. Refining margins to aid IOC the most among peers; its valuation is also the most attractive.

6. Mahanagar Gas

With Rs 1004/share target price, the stock is likely to give 18% return. It is trading at Rs 852.10/share. It has fallen 4.11% in 1 year.

According to the brokerage, Expect a volume growth of 4% YoY (flat QoQ) to 3.4mmscmd with CNG volumes up 4% YoY, down 2% QoQ. Expect EBITDA margin/scm of INR9.3 (-11% YoY/+3% QoQ). APM price revision and demand for higher commissions to sell CNG by OMCs raise concerns on current high margins. Addition of MRUs, which could be a game changer for the company, is a key monitorable.

7. Oil India

With Rs 256/share target price, the stock is likely to give 15% return. It is trading at Rs 223.70/share. It has given maximum 41.8% positive return in 3 years.

According to the brokerage, Oil realization (before windfall tax) to decline 12% QoQ, up 13% YoY in line with Brent movement in 3QFY23. Increase in production at the Baghjan field is a key monitorable over the medium term. Expect oil volumes at 0.78mmt (+7% YoY/flat QoQ) and gas sales of 0.65bcm (+2% YoY/-1% QoQ). OINL has taken notable provisions in the US Shale assets in FY21 that will make provisions in Mozambique and Russia blocks in future.

8. Oil & Natural Gas Corporation (ONGC)

With Rs 200/share target price, the stock is likely to give 36% return. It is trading at Rs 147.10/share. It has given maximum 41.8% positive return in 3 years.

According to the brokerage, Expect net realization (before windfall tax) to grow 17% YoY but decrease 7% QoQ, in line with Brent movement. Expect oil sales at -5% YoY and +1% QoQ, with gas sales at -5% YoY and -2% YoY. VAP sales to decline 13% YoY. Production from the KG Basin remains crucial. Completion stood at 76% in Oct'22 and first oil expected in May'23. Capital misallocation, increase in windfall taxes or sharp decline in oil prices and non-implementation of a floor for APM gas are some downside risks for ONGC.

9. Petronet LNG

With Rs 282/share target price, the stock is likely to give 28% return. It is trading at Rs 220.60/share. It has fallen 19.37% in 3 years.

According to the brokerage, We model in Dahej/Kochi utilization at 79%/19%. Expect total PLNG volumesto decline 12% YoY and 4% QoQ. High spot LNG price, which is dampening demand, is a key near-term monitorable. Ramp-up at Kochi terminal and total volume guidance remain the key.

10. Reliance Industries

With Rs 2957/share target price, the stock is likely to give 21% return. It is trading at Rs 2457.65/share. It has given maximum 158.61% in 5 years.

According to the brokerage, Expect consolidated EBITDA at INR299b (+1% YoY/-4% QoQ), driven primarily by growth in the retail segment. Expect EBITDA at INR109b (-22% YoY/-9% QoQ) for the O2C segment. Expect production meant for sale at 17mmt (+5% QoQ). Expect EBITDA/mt at USD78.7 (-15% QoQ). Further clarity on INR750b announcements in the new energy business, growth in Retail store additions, and any pricing action in Telecom are the key monitorables.

Disclaimer

The stocks have been picked from the brokerage report of Motilal Oswal. 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.