InvestorQ : UBS in its latest report has upgraded oil companies for the year. What is the view for RIL, ONGC and BPCL as per the UBS report?
Neelam Naik made post

UBS in its latest report has upgraded oil companies for the year. What is the view for RIL, ONGC and BPCL as per the UBS report?

Priyanka N answered.
2 years ago

UBS has expressed optimism that oil marketing companies (OMCs) and upstream production companies could actually re-rate in 2020 as the privatisation theme picks up and sustained strength in marketing business performance is visible. In addition, UBS has stated that the gross refining margins (GRMs) were likely to recover due to International Maritime Organization and Bharat Stage VI emission norms. In addition, it also expects the gas transmission businesses to recover with higher availability of domestic gas and liquefied natural gas. In terms of gas companies, UBS has upgraded GAIL India to buy but has downgraded Gujarat Gas and Mahanagar Gas to sell recommendations.

· RIL remains the preferred stock for the year in the oil sector with a price target of Rs.1750. The report stated that the refining complex upgrades were completed ahead of schedule, with the pet coke gas iffier also under stabilization. The report also states that while petrochemical margins face near-term headwinds; feedstock flexibility and integration are providing some respite over the medium to long run. In fact, UBS also expects re-organisation of Jio and the digital platform strategy to be very good and attractive investment proposition. UBS also expects that for Reliance Industries, retail and telecom will continue to drive the growth in top line and also in bottom line. They could be the big growth areas for the company.

· The brokerage has also upgraded BPCL with a target price of Rs.600. BPCL has prepared itself fully well ahead of schedule for IMO 2020 and therefore it will benefit substantially from the higher complexity and widening light-heavy differentials. UBS has also added and said that its superior marketing performance is reflected in its stable market share as well as the highest throughput per outlet among state-owned oil marketing companies. UBS has also added that if the company gets closer to its intrinsic valuation in the divestment process then it could be a massive boost for the price performance of the stock.

· UBS also has a buy on ONGC with an aggressive target price of Rs.200. According to the estimates that ONGC is discounting nearly $50 per barrel of Brent prices and has been trading significantly below long-term valuation multiples. The buy recommendation on ONGC is driven by the strong fundamentals, stable oil price outlook, no fuel subsidy burden and diversification of earnings from downstream investments. It sees ONGC as deeply underpriced.