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Tuesday, March 19, 2013

India Oil & Gas - "10 stocks, 10 factors"

Indian oil & gas sector has seen an eventful FY13 with hoards of announcements by companies and plenty of changes accorded by the government. While some companies have gained out of these, there are few who have borne the pain as well. External factors such as crude price movements, exchange rate fluctuations, sanctions on Iran, Euro Zone debt crisis and many more have played their part in increasing the volatility.

In this report, we pick 10 factors that we feel will have the maximum impact on the sector's performance in the medium term. We provide an outlook on each of these variables and give an insight into their impact on the respective companies. Based on our findings, we have also furnished our investment view on 10 companies.

Our top picks include Cairn India (best proxy on crude prices, cheap valuations), Oil India (strong production growth, play on reforms, huge cash balance), ONGC (relative under valuation to global peers, play on reforms), BPCL (huge upstream value, less sensitive to vagaries of subsidy sharing), Petronet LNG (rising domestic gas demand, expectations of weak LNG prices) and GSPL (long term growth in gas supplies, attractive valuations). We have assigned Market Performer rating to Reliance Industries (core business of refining & petrochemicals still under pressure, KG-D6 volumes continue to fall), GAIL (risk to earnings from regulations, fall in petrochemical profitability if gas prices are raised), HPCL (high risk to earnings from subsidy sharing mechanism, high leverage) and IOC (limited upside potential).

The 10 factors
  1. Volatility in crude prices
  2. Depreciating rupee
  3. Muted outlook for gross refining margins
  4. Sustained strong demand for petroleum products in domestic market
  5. Diesel, kerosene and LPG prices still under government control
  6. Subsidy sharing pattern remained volatile
  7. Gas supply concerns raised in the medium term
  8. Rising demand-supply gap in the domestic gas market
  9. Controlled gas prices
  10. Uncertainty over regulations

The 10 stocks (Market Prices as on 14th March, 2013)
CompanyRatingCMP (Rs)Target (Rs)Upside (%)
Cairn IndiaBUY29836020.8
Reliance IndustriesMP8489309.7
Oil IndiaBUY54763816.6
Petronet LNGBUY14818726.7
Source: India Infoline Research

Note : Out of above 10 oil stocks only Reliance, ONGC and GAIL are Shariah Compliant stocks and hence  those investors who are following shariah guidelines can invest in only these three stocks. Its Ethical to invest in these stocks as of today 19th March, 2013. We will update if these stocks are removed from the list of Shariah Compliant Companies.


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  3. Nice information you have shared in this blog. I think every person should know the facts regarding the increment of oil and gas price here below some more reason behind this-
    Heating oil demand
    increment of per barrel.rate in international market
    politics issues
    These all issue directly effect the indian commodity market that may increase their money or may reduce their money depend on the situation