Brokerage firm Prabhudas Lilladher (PL) has retained its ‘SELL’ rating for HPCL but revised the target price to Rs 276, up from the earlier Rs 272. Additionally, PL has downgraded the ratings for BPCL and IOC Ltd from ‘Reduce’ to ‘Sell,’ valuing them at 1 times FY26 Price to Book Value (PBV) and 0.7 times FY26 PBV, respectively. The brokerage firm expects the operating profit for the oil & gas sector to decline by 24 percent sequentially to Rs 86,100 crore in its Q3 preview note. This decline is primarily attributed to weak refining margins of oil marketing companies (OMCs). PL has also adjusted its target prices and ratings for several stocks ahead of the December quarter results.
Among the upstream companies, including Oil & Natural Gas Corporation Ltd (ONGC) and Oil India Ltd, PL anticipates that production volumes and net crude realization will remain stable at $75 per barrel after accounting for windfall taxes. Similarly, PL expects gas realization to remain unchanged quarter-over-quarter at $6.5 per mmBtu.
In terms of specific companies, PL forecasts a 9 percent YoY growth in volumes for Indraprastha Gas Ltd and Mahanagar Gas Ltd, while Gujarat Gas Ltd is expected to experience a substantial 31 percent YoY volume growth due to increased industrial volumes. For Reliance Industries Ltd’s O2C segment, PL anticipates lower operating profits due to declining refining margins and weak petrochemical spreads. PL is optimistic about steady telecom performance, projecting a 2 percent quarter-over-quarter ARPU growth and steady retail revenue growth. Among all the companies in the sector, ONGC remains PL’s top pick.
Regarding OMCs, PL expects a decline in operating profitability due to falling refining margins. The average Singapore GRM for the quarter has decreased to $5.5 per barrel, down by $4.1 per barrel QoQ, primarily driven by a decline in product cracks. Inventory losses are expected to further impact GRMs. However, marketing margins on petrol and diesel are expected to remain robust despite the fall in benchmark prices.
For Reliance Industries Ltd (RIL), PL predicts lower results QoQ, primarily due to weaker refining margins and a sequential decline in petrochemical profitability. PL maintains an ‘Accumulate’ rating for RIL with a SOTP-based target of Rs 2,718, up from Rs 2,618 earlier, valuing the standalone business at 7.5 times FY26 EV/Ebitda, Retail at 39 times FY26 EV/Ebitda, and Jio at 15 times FY26 EV/Ebitda.
As for GAIL, PL anticipates strong performance in trading and transmission but expects petrochemical performance to remain under pressure. Transmission volumes are projected to reach 122 mmscmd, while trading volumes are estimated at 100 mmscmd. Petrochemical volumes for Q3 are expected to be 178KT. PL has downgraded the rating for GAIL to ‘Hold’ from ‘Buy’ but revised the target price to Rs 155 from Rs 151 earlier, based on 12 times FY26 EPS of Rs 10.9, adding the value of investments.
PL has also downgraded its rating on Oil India to ‘Hold’ from ‘Buy’ and revised the target to Rs 379 from Rs 368, based on 5 times FY26 EPS. However, PL maintains a ‘Buy’ rating for ONGC with a target price of Rs 258, up from Rs 237 earlier, based on 7 times FY26 EPS, and including the value of investments.
In the case of city gas distributors, PL expects a decline in operating profitability due to rising spot LNG prices. However, Gujarat is expected to see a 31 percent YoY volume growth, driven by a recovery in Morbi volumes. MGL and IGL volumes are expected to grow by 7 percent and 9 percent, respectively. PL has downgraded the ratings for MGL and Petronet from ‘Hold’ to ‘Reduce,’ with target prices of Rs 1,065 and Rs 208, respectively. Gujarat Gas has been downgraded from ‘Accumulate’ to ‘Hold,’ with a target of Rs 473, and GSPL has been downgraded from ‘Buy’ to ‘Accumulate,’ with a target of Rs 374. These targets are based on various multiples of FY26 EPS and include the value of investments. Finally, PL maintains a ‘Hold’ rating on IGL, with a target price of Rs 416, up from Rs 406 earlier, based on 13 times FY26 EPS. It’s important to note that all this information is provided for informational purposes only and should not be considered as investment advice. Readers are advised to consult with a qualified financial advisor before making any investment decisions.
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