by In today’s article, we will know about an industry or sector that plays an important part in everyone’s life. I am talking about Oil and Gas industry then we will discuss the Top 5 oil and gas sector stocks in India. In terms of Oil and Gas industry, without it, society and the development in recent times wouldn’t be imaginable.
So we thought of analyzing this sector. We will let you know what the oil and gas sector is, how it works, how to determine oil prices in India, government rules. In the end, I will tell you about 5 big companies who run a business in this sector.
Disclaimer: This article is only for educational purposes. I do not recommend buy or sell so please consult your advisor and do your own research before investing.
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Oil and Gas sector Analysis
- Let’s first talk about the industry. The oil and gas industry is a commodity where all development is dependent.
- In terms of petroleum, petroleum has its own use and is used in making chemicals. Also, it is used in commodities of daily use.
- Petroleum is used in pharmaceuticals, solvents, fertilizers, pesticides, synthetic fragrances, plastics, paints, artificial rubber, and many more.
- In the whole world, oil is used for energy generation. In European Union, oil contributes 32% of the total energy generation. The Middle East contributes 53%. The production, distribution, refining, and retailing of petroleum taken represents the world’s largest industry in terms of dollar value.
- Just the oil & gas drilling industry is expected to be at $2.1 trillion. So you can imagine how big this industry is including upstream and downstream.
- The biggest producers of oil in the world are Saudi Arabia, the USA, and Russia.
- These three countries alone account for 43% of world oil production.
The Oil & Gas industry is divided into 3 main parts-
- Upstream,
- Midstream,
- and Downstream.
Now I will explain to you in detail the industries in it. Under the oil lifecycle first comes the exploration, development, and production of crude oil or natural gas. It is done via upstream companies.
In Midstream companies, it does the storage and transportation. In Downstream companies, they use oil to make derivative products that are used in chemical industries.
How to determine the prices of oil?
- Oil prices are determined by the trading price of oil in the futures market in the world.
- This price is dependent on the supply-demand. Demand for the commodity is fixed and growing steadily.
- More important supplies. Here comes OPEC, which you must have heard. OPEC is the Organization of Petroleum Exporting Countries.
- OPEC countries decide the supply of oil. If oil is produced less, demand remains the same or goes up then the price will go up.
- If production increases, supply increases, oil prices reduce. The factor we talked about is OPEC countries which determine oil prices.
- But there are more factors affecting supply. The second is Natural disasters. Suppose there is a natural disaster and it affects the world’s supply of oil, then because of the increase in demand, prices will go up.
- From time to time petroleum is explored and if oil is found in a new place, then supply will increase and the price will go down.
- After talking about the oil and gas industries, now let’s talk about India’s oil and gas industries.
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India’s oil and gas industries
- Before going to this, I’ll show you important details above chart which will tell how India’s oil and gas industry works.
- India is the 2nd largest importer of oil in the world after China. It imported around 205 million tons in 2019.
- The country imports around 80% of its oil requirements and 45% of its natural gas or LNG requirements.
- So you can understand India’s dependency on other countries for oil and gas imports.
How petrol and diesel prices in India are determined?
- We take daily by the average crude oil price in the last 15 days and Excise duty is added to it.
- Then the margin of dealers who retails it is added and then value-added tax is added- the final price comes which we consumers pay.
- After knowing about the whole industry, let’s see what is currently happening in the oil sector and important thing for you to know if you are thinking of investing in it.
- Recently the shoot in demand increased coal prices and few places saw an energy crisis which mainly started in china.
- Energy requirement has increased in the world after covid.
- This sector came in limelight. The oil and gas sector is critical as its price inflation affects India as its use in daily items.
- Inflation in India depends on oil prices. For which government takes steps time-to-time to control it.
Advantages of Oil & Gas Sectors
- Now, let’s know the advantages for India in this sector. As you can see on my screen, the first is growing demand.
- The energy demand in India has increased. India is 3rd largest energy consumer in the world.
- Also, demand for diesel has increased recently. By 2030, the demand may double. The second factor is Rapid Expansion.
- More expansion in the economy will be seen in recent times. This will increase demand in the sector.
- The third is Supportive FDI guidelines. In India, these guidelines have been eased which boosts this sector.
- Last is Policy Support. In the 2021 union budget, the government allocated funds worth 12480 crores where the direct benefit will be transferred of LPG. there has been good policy support which showed development in this sector.
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Top 5 oil and gas sector stocks in India
Now let us look at the top 5 oil and gas sector stocks in India are as follows:
Reliance Industries
- Reliance Industries is the largest company in India in terms of market capitalization. It was founded in the 1960s as a textile company and has since then expanded into many industries including petrochemicals, refining, and now Jio.
- It is ranked 155th in the Fortune 500 currently. Reliance Industries owns the largest refinery in the world in Jamnagar.
- It has a total refining capacity of 60 MTPA which is around 23% of the total portion in India.
- The company’s oil business accounted for around 68% of its revenues. Also, reliance is the world’s largest petrol seller.
- You must have seen petrol pumps in reliance name which is in 50-50 partnership with British petroleum.
- It has 1400+ petrol pumps. In the future, they want to take this number up to 5500 pumps by 2024.
- So you can understand the expansion of the value chain in the future.
Company financials
- Its market cap is 17,04,268 crores. The current price-to-earnings ratio is 35.8.
- Debt to Equity is 0.41. Currently, operating profit is 16.8%. It has given 15.8% returns to its investors in 1 year.
- In 5 years, its sales compounded at 11.3%.
ONGC
- Second is ONGC which is the largest upstream oil company in India.
- It accounts for 71% of the total domestic oil production & 84% of the gas production in India.
- It was formed by the Govt of India in 1956 for oil exploration. Now it’s one of the Indias Maharatna companies.
- It is the largest PSU profit-making in India. It has a subsidiary -ONGC Videsh is present in 17 countries in the world.
- ONGC sells its oil and gas to marketing companies whose major customers are BPCL and IOCL.
- One interesting fact is that ONGC is India’s 3rd largest OMC with a 51% share.
Company Financials
- Its market cap is 2,11,410 crores. Price to earning ratio is 9.89.
- The operating profit margin is 14%.
- Debt to equity is 0.6. In a year it has given a return of 142% to its investors.
Indian Oil Corporation
- Next is IOCL- Indian Oil Corporation is the largest Oil Marketing Company in India. It was formed in 1958.
- Its total capacity is around 32% of the total refining in India. It’s one of the Indias Maharatna companies.
- Now let me show you some interesting numbers on the above chart. IOCL has 32,062 retail outlets.
- It has 12,726 LPG distributors. It has 6,885 petrol pumps. It has 1059 CNG stations. It has 121 aviation fuel stations.
- Now you can understand its capacity and caters to a big customer base.
Company Financials
- Its market cap is 1,22,478 crores. Price to earning ratio is 4.8.
- The operating profit margin is 10.9%.
- In a year it has given a return of 72.7% to its investors.
BPCL
- The fourth company is BPCL, Bharat Petroleum is the 2nd largest OMC in India.
- An interesting fact is that BPCL has the largest stake in Indraprastha Gas.
- it has more than 18000 retails outlets that operate in India.
Company Financials
- Its market cap is 96,998 crores.
- Price to earning ratio is 8.36.
- The operating profit margin is 7.35%.
- It has given a return of 27% in a year.
Gas Authority of India Ltd (GAIL)
- Now let us talk about the last company- Gas Authority of India Ltd, or GAIL.
- GAIL was started in 1984 and it is one of the 9 Maharatnas in India.
- It owns and operates a network of around 13,340 km of natural gas pipelines across India.
- GAIL has a 70% market share in gas transmission and a 53% share in gas trading in India.
Company Financials
- Its market cap is 73,910 crores. Price to earning ratio is 9.7.
- It has given a return of 89.6% in a year. Ita ROE is 12%.
- One more interesting fact is GAIL runs a business in Russia, China, etc.
Conclusion
Overall if we conclude Top 5 oil and gas sector stocks in India has an excellent business and its management, strong competitive advantage and solid financial, and a good growth prospect which makes it a fundamentally super strong company.
What is your take on Top 5 oil and gas sector stocks in India have you invested in it do let me know in the comment box. I hope you find this analysis useful, and if yes please share it with your friends and family.
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