MUMBAI: Oil & gas sector stocks rallied on Monday, buoyed by the news that the government is planning to merge 13 state oil firms to create a giant corporation. The mood was further boosted by global brokerage firm Morgan Stanley, which upgraded its rating on Indian OilBSE 0.58 % to overweight and raised the target price of BPCLBSE -0.28 % and HPCL.
Shares of ONGC were up 1 percent while Indian Oil, HPCL, and BPCL gained between 2 per cent and 4 per cent. Shares of smaller refiners such as MRPL and Chennai Petroleum surged 12 per cent and 6 per cent, respectively.
ET had reported on Monday that the oil ministry has begun evaluating the prospects of creating an oil conglomerate by merging 13 state oil companies, which will have a bigger market value than the Russian state oil giant Rosneft and India’s Reliance IndustriesBSE -0.66 %.
Morgan Stanley raised its price target by 37-53 percent for the oil marketing companies as they find their valuations attractive with the FY18 estimated EV/EBITDA at 5.5 times and P/E at 8 times, on both absolute and relative basis.
“Despite outperforming the Sensex by over 50 per cent, OMC stocks’ sharp growth is not yet fully priced in, as they still trade at above 25 per cent discount on FY18 estimated P/E and EV/EBITDA on both absolute and relative basis,” Morgan Stanley said in a note.
Morgan Stanley expects continued earnings momentum to narrow this valuation gap and drive further stock performance.
