HPCL, MGL are momentum plays; ONGC, Oil India downgraded, says MOFSL

Motilal Oswal Financial Services (MOFSL) has turned selective in the oil & gas space, naming HPCL, Mahanagar Gas (MGL) and Petronet LNG (PLNG) as its top picks, while downgrading upstream majors ONGC and Oil India on concerns over demand and oversupply.

According to the brokerage, oil marketing companies (OMCs), city gas distributors (CGDs) and upstream producers have corrected 2–13 per cent in recent months, bringing sector valuations to about 15.7 times one-year forward P/E.

MOFSL highlighted four key themes shaping its stance. The first is the fact that China’s oil demand is weakening, marking a structural shift and dragging global oil demand growth below 1 mb/d for the first time in a decade outside crisis years.

It noted that IEA is projecting robust supply growth of 2.7 mb/d in 2025 and 2.1 mb/d in 2026, raising oversupply risks. Third, petrochemicals are emerging as the key driver of oil demand, overtaking gasoline and gasoil. Lastly, marketing margins for auto fuels remained strong, while city gas distributors (CGDs) could see Ebitda margin expansion as softer crude and LNG prices ease input costs.

"We reiterate that the risks of crude oil prices falling below the $65 per barrel mark are mounting as OPEC+ strategy shifts from managing oil prices to protecting market share," MOFSL said.

It said every $1 a barrel decline in crude oil price results in a 2-4 per cent cut in its FY27 standalone PAT estimates for ONGC and Oil India.

OMCs & CGDs
MOFSL estimated that a $5 a barrel decline in crude translates into Rs 4 per litre change in OMC marketing margins, which are currently well above its Rs 3.3 per litre assumption. For CGDs, softer gas prices and easing concerns around APM deallocation should support profitability.

Here's what it said on the three stocks:

Petronet LNG
The brokerage sees PLNG trading at “rock-bottom” valuations of 9 times FY27E EPS and a 4.3 per cent dividend yield. Its DCF-based target price of Rs 410 implies meaningful upside, even after factoring in a conservative view on the company’s petchem capex and tariff structure.

HPCL & MGL
MOFSL tagged HPCL and MGL as momentum plays and Petronet LNG as a value play. HPCL is preferred among OMCs for its marketing leverage and catalysts such as the planned demerger and listing of its lubricant business, commissioning of its bottom upgrade unit by end-FY26, and Rajasthan refinery start-up in FY26.

MGL, meanwhile, is expected to deliver a 9 per cent volume CAGR over FY25–27, supported by initiatives like OEM collaborations for CNG conversions and price discounts for new PNG customers.