oil india: Massive rally in Oil India makes it a multibagger in one year; should you buy?

NEW DELHI: It is rare for Dalal Street investors to encounter a PSU multibagger, and if one comes from the energy sector, which has a track record of underperforming more often than not, the happiness is even sweeter.

In the recent days, thanks to massive buying due to improving margins led by rising crude oil prices and bullish analysts, Oil India has smashed most targets set by brokerages and delivered more than 100 per cent returns in the last one year.

The stock on Thursday hit 52-week-highs as it jumped over 8 per cent to Rs 805 level.

Haitong Securities in its monthly report on the hydrocarbon sector said gross refining margin (GRM) of refinery companies is breaking all barriers. The broker said it continued its dream journey with a 14 per cent jump in May 2022 to average $21.1/bbl after seeing a rise of 70 per cent in April 2022.

“The European Union move to completely phase out Russian oil products in eight months would keep GRM at an elevated level in the near- to medium-term. Further, no major refining capacity is expected to commence over the next two years; refinery run-rate is expected to remain robust,” it said.

Oil India is one of the companies that has seen rise in margins in recent times. Haitong has an ‘outperform’ rating on the stock with target at Rs 305, which the stock has already met.

The buying in the counter has also been encouraged by a bullish management commentary. The management of Oil India in its analyst call last week expected margins to rise further in the ongoing fiscal year.

“Our margins are generally good and last year was exceptionally good because of the Ukraine war and spread between diesel because we are mostly a diesel refinery as of now, we have a hydrocracker, we maximise the diesel production. So that being the case, the first two months of the current financial year were even better,” said Bhaskar Jyoti Phukan – Managing Director, Numaligarh Refinery, one of Oil India’s prominent refineries.

“You know that diesel spread was hovering around $47 in the month of March, it has marginally come down now, it is in mid-30s now. So therefore, our margins this year are also going to be very high if things remain the way it is today,” he added.

The consensus view on the stock is bullish. As many as 13 analysts have either buy or strong buy recommendations. In comparison there is just one sell and two hold calls on the stock.

Data shows the highest target on the stock is Rs 420, which means 38 per cent upside in the counter. Though, it has already moved past the consensus target price.


(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)