ONGC, BPCL rise up to 4%, Nifty oil & Gas index up to 1.5%: 4 key risks and opportunities in the

Oil and Natural Gas Corporation adding to its gains on Monday rose up to 4% and was amongst largest Nifty-50 gainers accompanies by Bharat Petroleum Corporation stock. Hindustan Petroleum Corporation , Bharat Petroleum Corporation , Indian Oil Corporation share prices gained up to 2% while GAIL India ltd share price also saw similar gains

The analysts however remain cautious on certain pockets amidst rising rising hostilities between Iran and Israel adding to concerns on crude oil prices and Supplies

Caution prevails on rising crude prices

Iran produces 3.2mnbopd (million barrels of oil per day) and also has a significant control on Strait of Hormuz which accounts for 30% of oil transit and 70% of oil shipment to Asia. Hence as per Swarnendu Bhushan, Co – Head of Research at Prabhudas Lilladher, “ Any escalation that may impact the oil production of Iran or affect the oil transit through the Strait can result in a sharp spike in the oil prices”

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Oil Marketing companies as Hindustan Petroleum Corporation , Bharat Petroleum Corporation , Indian Oil Corporation face larger risks since India is dependent on imports of crude oil to meet large portion of its oil requirements. It is the Oil Marketing companies as Hindustan Petroleum Corporation , Bharat Petroleum Corporation , Indian Oil Corporation that import crude, market petroleum products after refining crude oil. Hence higher crude prices or disrupted supplies increase earnings risks for Hindustan Petroleum Corporation , Bharat Petroleum Corporation , Indian Oil Corporation.

Bhushan said that this would affect oil marketing companies negatively as they may not be able to take commensurate price hikes.

Analysts at Motilal Oswal Financial Services also said that, they see elevated crude/refined product prices as negative for integrated margins of oil marketing companies as Hindustan Petroleum Corporation , Bharat Petroleum Corporation , Indian Oil Corporation Every Rs1 change in gross marketing margin impacts consolidated Ebitda of Hindustan Petroleum Corporation , Bharat Petroleum Corporation , Indian Oil Corporation. by 25%, 22%, 23% for FY25 respectively.

Upstream Companies better placed

Rising crude pries while should benefit oil producing upstream companies as ONGC and Oil India Ltd. However for upstream companies as ONGC and Oil India, realization is managed through windfall taxes which may rise commensurately, and hence have no impact on upstream companies.

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The government raised windfall taxes from ₹6,800 to ₹9,600 per metric tonne, effective today ie, April 16 looking at the rising crude prices. However stock prices of ONGC and Oil India still saw share prices gain.

Analyst at a domestic Brokerage on condition of anonymity said that even though the windfall taxes limit gains on realisations , nevertheless it is the cheap valuations and also earnings visibility that may lead to gains for ONGC and Oil India. In the current environment with earnings cushioned on the downside and valuations attractive for ONGC and OIld India, the gains will follow, he added.

For GAIL India Ltd , is likely to benefit from rising crude prices. The higher Crude pushes gas demand while higher crude prices also mean higher petrochemical prices, both of which are positive for GAIL India Besides any rise in gas prices also is expected to add to gains for GAIL.

Risks for City Gas distributors

While GAIL benefits outlook is mixed for other city gas distribution companies as Indraprastha Gas , Gujarat Gas , Mahanagar Gas . Gujarat Gas sources majority of gas from spot market and hence spot gas prices rise may not be favorable for Gujarat Gas. For GAIL Ltd too any supply disruption for gas cargoes also remains a risk as is for Gujarat Gas.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions

for GAIL Indiaa