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State-owned oil stocks have more juice left in the barrel
Few stocks can claim to have juice left as markets hit staggering heights as 2023 bid goodbye. Public sector unit or PSU oil stocks like ONGC, OIL and GAIL are a rare few which still hold value. Thanks to production expansions, regulatory consistency and more the government owned companies are set to better days ahead.
Most of the oil stocks have given over 60% returns in the last one year, with the exception of BPCL and ONGC. Yet, the upstream companies especially are trading at a discount, claim brokerages.
Thus, going ahead, Antique Stock Broking believes that ONGC and Oil India remain among the cheapest upstream stocks globally despite a rally in the last six months. “We believe the current valuations do not fully reflect the jump in realization of both oil and gas over the last 6-18 months and the resultant cash flow,” it said.
Both the companies are expected to see significant free cash flows starting FY24, after the gas prices increased via Administered Pricing Mechanism by the government. Not only will it improve margins, but improved price realization would lead to much more attractive returns on their annual capex.
“We believe positive momentum in the upstream sector would be led by a shift towards companies with undemanding valuation, while we find fundamental support led by steady earnings and cash flows on the back of regulatory consistency, stable commodity prices, and margins and triggers in the core production outlook,” said a report by Emkay.
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