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Top Stock Picks: 11 Oil & Gas Stocks To Buy As Suggested By Prabhudas Lilladher


Prabhudas Lilladher, a brokerage firm, is bullish on the oil and gas sector. Strong gross refining margins (GRMs) and elevated inventory gains to partially offset weak marketing performance are strong indicators to be positive in the sector, according to the brokerage.

Top Stock Picks: 11 Oil & Gas Stocks To Buy As Suggested By Prabhudas Lilladher

The brokerage has highlighted that "We cut our OMCs earnings for FY23-24E by 3-9% to factor in lower marketing margins, offset by higher GRMs. However, we increase our FY22E earnings by 4-25% to factor in strong Q4 results, given high inventory gains and GRMs. Government's dithering on fuel price hike despite sharp up-move in crude oil prices creates fresh headwinds on OMCs earnings. With crude prices likely to remain elevated due to geopolitical tensions compounded with marketing losses of over Rs12/litre, we cut our marketing margin assumptions for FY23- 24E to Rs3.0/3.5litre for petrol and diesel from Rs4.2/4.5/litre earlier after factoring in higher GRMs (+USD1.2-1.8/bbl))."

"We believe that comfortable valuations and high dividend yield of 6-9% offers downside support. However, affirmative government action will remain the key for stock performance. Reiterate 'Overweight' outlook on the sector on lowered P/E multiple at 6.5x FY23E (8X earlier). HPCL remains our preferred pick," the brokerage has further added.

Prabhudas Lilladher has claimed "Crude oil prices have been on a boil since mid Feb 22, due to geopolitical concerns in Ukraine. That coupled with move to impose sanctions on Russian crude has pushed Q4 average Brent prices to USD96/bbl vs Q3FY22 average of USD80/bbl. Due to geopolitical tensions, we expect crude oil prices to remain elevated, despite recent correction from highs of USD135/bbl. Contrary to expectation of increase in prices post state election results given the high marketing losses of ~Rs12/litre, government delayed retail price hikes thereby creating an uncertainty on OMC earnings. We reduce our marketing margin assumptions for FY23/24E to Rs3.0/3.5/litre for petrol and diesel (FY22E Rs3.8/1.6) from Rs4.2/4.5 earlier due to high crude prices."


The brokerage has also noted "GRMs have been strong due to low end product inventory levels along with disruptions in product supplies, due to ongoing geopolitical tensions. Low inventory in US and EU will likely keep diesel spreads strong (Q4 avg at USD17/bbl vs Q3 USD12/bbl). Along with resilient gasoline spreads of USD16/bbl, we expect OMCs to benefit as they account for ~70% of their refining product basket. We increase our GRM assumptions for FY23/24E to USD7.4-8.5/bbl (+USD1.2-1.8/bbl)."

"We expect OMCs to report strong Q4 results with PAT of Rs172bn (Q3FY22: Rs92bn), led by high refining margins and inventory gains of Rs225bn. However, weak marketing profits (Q4YTD marketing margins of Rs0/litre vs Q3 average of Rs5.5/3.0/litre in Q3) would impact earnings," Prabhudas Lilladher has also added in a note.

Oil & Gas Stocks To Buy

Sr No.Company NameRatingTarget Price (Rs)
1Bharat Petroleum CorporationBUY543
2GAIL (India)BUY205
3Gujarat GasBUY675
4Hindustan Petroleum CorporationBUY445
5Indian Oil CorporationBUY205
6Indraprastha GasBUY660
7Mahanagar GasBUY1,187
8Oil & Natural Gas CorporationBUY210
9Oil IndiaBUY210
10Petronet LNGBUY356
11Reliance IndustriesBUY2,955
Source: Prabhudas Lilladher

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