RIL, ONGC, GAIL and Indian Oil shares among top bets as FY24 to be a 'blockbuster' for oil & gas sector

For the oil and gas sector — the profit after tax (PAT) or earnings before interest, taxes, depreciation, and amortisation (EBITDA) — in the fourth quarter of previous fiscal (Q4FY23) was much stronger than the preceding quarter, and this trend is likely to continue this fiscal, said analysts at ICICI Securities. EBITDA grew 22 percent and PAT rose 29 percent year-on-year in Q4FY23 as against a flat EBITDA and 17 percent on-year decline in PAT in Q3FY23.

Robust improvement in the results of Reliance Industries Limited (RIL) and the Oil Marketing Companies (OMCs) were primarily responsible for the aggregate earnings jump. This was despite muted results for the gas companies owing to a stronger base and sharp deceleration in GAIL’s earnings momentum.

"RIL's operational rebound, which commenced in Q3FY23 continued into Q4FY23 as well. EBITDA/PAT for Q4 jumped 23 percent/19 percent on-year helped by strong OTC or upstream and retail segments, ven as RJio was relatively muted," the brokerage said, maintaining a 'Add' rating on the counter due to stronger-than-estimated capex, lower return ratios and limited return of cash to shareholders.

Quarter-on-Quarter trends were uniformly stronger with all sub-segments, barring upstream, reporting QoQ growth in both EBITDA and PAT, up 33 percent and 62 percent QoQ, respectively.

The three gas utilities — Gail (India), Petronet LNG, Gujarat State Petronet — together delivered a 67 percent on-year dip in EBITDA and 57 percent on-year decline in PAT, even as QoQ EBITDA or PAT improved 20 percent/90 percent.

GAIL saw continued cost pressures in petchem or LPG impact earnings while PLNG and GSPL saw lower volumes. This fiscal year should see stronger prospects with moderate costs driving stronger volumes.

Going forward, with moderate gas prices, crude at less than $75 per barel and improving infra or gas supplies, analysts expect this fiscal year earnings per share (EPS) to trend materially higher than in the last fiscal year (FY23).

Here are the oil & gas stocks to buy, sell and add as recommended by analysts—

RIL (Add); IOCL (Buy); BPCL (Buy); HPCL (Buy); ONGC (Buy) ;OIL (Buy); GAIL (Buy); GSPL (Buy); PLNG (Hold); IGL (Buy); MGL (Buy); Gujarat Gas (Buy)