India Oil And Gas Sector Check - Value Trade Is Fading Away: Motilal Oswal

Motilal Oswal Report

The average one-year forward price/earning valuation for the 15 oil and gas stocks in our coverage is 13.5 times now, up 35% versus June 2023. Barring a few stocks, which still have reasonable valuations, we believe the value trade has all but faded away for the Indian oil and gas sector.

We now prefer Hindustan Petroleum Corporation Ltd. over GAIL india Ltd. and Oil India Ltd., where we believe valuation comfort is lower and earnings delivery is critical. HPCL trades at FY26E price/book of 1.2 times (FY26E return on equity: 17.8%) versus GAIL’s 1.7 times and Oil India’s 1.3 times (FY26E RoE of 15%/16%).

We highlight Gujarat Gas Ltd. as a potential beneficiary of the possible inclusion of natural gas under GST and believe that the impact for other oil and gas players will be marginal in the short term.

Gujarat State Petronet Ltd.’s current market price implies a 45.3% holding company discount on Gujarat State Petronet’s stake in Gujarat Gas.

However, the long-term average discount has been 28% while the maximum discount was 60%. We continue to highlight Gujarat State Petronet as an inexpensive way to take exposure to Gujarat Gas.

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