CLSA says RIL, IOC key buy ideas in oil and gas sector

Mumbai: CLSA said Reliance Industries and Indian Oil Corporation would be its key buy ideas in the oil and gas space.

The Hong Kong-headquartered international brokerage said most oil and gas companies will reap benefits of stabilisation in large projects in 2017. Reliance, on which it has a price target of Rs 1,350, is likely to benefit from project starts worth $35 billion, said CLSA.

Most of the conglomerate’s downstream expansions, including should start contributing to profit, and its telecom venture Jio should start generating revenue and cash profit in 2017 as services will become chargeable from April, added CLSA.

“...the stock is building in excessive pessimism on Jio. Historically, the best performance of the stock has coincided with the start of large expansions,” said CLSA.

On Indian Oil, CLSA said the stock could see both earnings upgrades as well as valuation re-rating when its Paradip refinery delivers.

“Refining expansion at Paradip for Indian Oil and at Kochi for Bharat Petroleum by March 2017 should give a boost to their profits in 2017,” said CLSA. The brokerage has a target price of Rs 405 on Indian Oil.

CLSA said it expects upside in crude oil prices to be capped, but any sharp spike would be a key risk for Indian Oil Corporation as well as for Bharat Petroleum Corporation and Hindustan Petroleum Corporation.