According to Brokerage Prabhudas Lilladher (PL), in its Q3 preview report, the operating profit for the oil and gas sector pack is expected to decrease 24 per cent sequentially to Rs 86,100 crore, mostly due to the oil marketing companies’ (OMCs) weak refining margins. Ahead of the release of the December quarter results, it has updated the target prices and ratings for a few shares.
“We factor in a 31% YoY volume growth in Gujarat Gas Ltd due to significant development in industrial volumes, while volumes in Indraprastha Gas Ltd and Mahanagar Gas Ltd are likely to expand by 9% and 7% YoY, respectively. We anticipate that the O2C business of Reliance Industries Ltd. would report reduced operating profits due to weak petchem spreads and a fall in refining margins. Along with our 2% QoQ ARPU growth, we factor in strong telecom performance. Stable retail revenue growth is also anticipated. Our top choice in the industry is still ONGC, according to PL.
It stated that after windfall taxes, upstream firms like Oil & Natural Gas Corporation Ltd (ONGC) and Oil India Ltd are anticipated to sustain production levels and net crude realisation of $75 per barrel. It also anticipates that gas realisation will stay constant QoQ at $6.5 per mmBtu.
PL, one of the OMCs, has kept its “SELL” recommendation on HPCL, with a target of Rs 276 as opposed to Rs 272 before, based on a 0.7 times price to book ratio for FY26. The ratings of BPCL and IOC Ltd were reduced from ‘Reduce’ to ‘Sell,’ with corresponding values of one time FY26 PBV and 0.7 times FY26 PBV. PL sees IOC at Rs 94 (unchanged) and BPCL at Rs 371 (up from Rs 365 previously). Based on five times the FY25 EV/Ebitda, it reduced the MRPL rating from “Hold” to “Sell,” with a target price of Rs 106.
For OMCs, “Operating profitability to deteriorate due to reduction in refining margins: Amidst decline in product cracks, average Singapore GRM for the quarter was $5.5 per barrel, down $4.1 per barrel QoQ. GRMs are anticipated to be further impacted by inventory losses. As a result, we anticipate operationally poorer OMC results due to a notable reduction in their refining margins. With a GMM of Rs9.1/1.2/ltr on gasoline and diesel, marketing margins have remained robust despite the decline in benchmark prices, according to PL.
Regarding GAIL, PL stated that while trade and transmission performance are anticipated to continue to be robust, petchem performance may continue to face pressure.
It is anticipated that trade volumes will be 100 mmscmd, while transmission volumes will likely reach 122 mmscmd. In Q3, petchem volumes are expected to reach 178KT. It updated its target price upward to Rs 155 from Rs 151 before, but downgraded the stock recommendation to “Hold” from “Buy.” This was based on the firm’s 12 times FY26 EPS of Rs 10.9, which added Rs 24 in value from investments.
Based on five times FY26 EPS, PL reduced its rating for Oil India from “Buy” to “Hold,” with a revised target of Rs 379 from Rs 368. It kept its “Buy” recommendation on ONGC and raised the target price to Rs 258 from Rs 237 previously, based on adding the value of investments and seven times FY26 EPS.