2 Oil & Gas Stocks On Prabhudas Lilladher’s Preferred Buy List
Shares To Buy
Brokerage firm Prabhudas Lilladher has come up with its latest report on the Oil and Gas sector. It has a “buy” call on the stock of HPCL with a price target of Rs 310 and on BPCL with a price target of Rs 420.
“In Q3FY23 Oil Marketing Companies (OMCs) turned profitable at Rs27.4bn after H1FY23 losses of Rs227bn given 1) improvement in marketing margins (blended marketing loss Rs1.6/ltr) and 2) healthy refining margins at USD$9.1-15.9/bbl. A year into the Ukraine-Russia war has led to high energy prices resulting in steep losses and severe OMCs underperformance (5-25%).
“However, Oil and product prices are now down by 12-18% vs last year. Going forward, we expect OMCs to report profits of ~Rs128bn in Q4FY23, based on current marketing margin trends and stock performance to reflect improving fundamentals. We maintain our estimates, recommendations and reiterate a positive stance on the sector. HPCL and BPCL are our preferred picks, given higher share of marketing revenues,” the brokerage has said.
Slowing global growth to keep a lid on crude oil prices
According to Prabhudas Lilladher, after a year of high volatility, they expect energy prices to remain benign as global growth is projected to slow at 2.9% for CY23 from 3.4% in CY22 as per IMF. The agency expects rise in central bank rates to fight inflation (CY23: 6.6% in CY23 vs 8.85 in CY22 and prepandemic 2017-19 level of 3.5%) and Russia’s war in Ukraine will continue to weigh on economic activity.
Marketing margins to benefit from benign oil prices
Likely benign crude oil prices augur well for OMCs, as marketing margins turn positive for diesel. At current trends, we calculate diesel marketing margins at Rs4/ltr, while petrol margins have
been positive since Q3FY23; we calculate positive blended marketing margins at Rs4/lts from loss of Rs1.6/ltr in Q3 & loss of Rs14/ltr in Q1.
Disclaimer
The stocks have been picked from the brokerage report of Prabhudas Lilladher. Greynium Information Technologies and the Author, and the respective Brokerages 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.