IGI Logo

Strengthening the case for O&G PSU re-rating

The Ministry of Petroleum & Natural Gas (MoPNG) recently held a high-level engagement with oil and gas PSUs, investors and analysts, attended by Shri Hardeep Singh Puri, Minister – MoPNG, and Shri Pankaj Jain, Secretary – MoPNG. The ministry addressed investor concerns around the persistent undervaluation of O&G PSUs, stressing that the operating landscape has transformed meaningfully vs. a decade ago. Robust earnings, improved corporate governance and capital allocation, and progressive reforms now provide a supportive backdrop for re-rating.

Government assurance - addressing PSU concerns:

* Timely support for under-recoveries: INR520b of LPG under-recovery dues have been settled since Oct’22, ensuring balance sheet relief and earnings visibility.

* Pricing stability: The ministry emphasized minimal interventions in product pricing, enabling margin stability for OMCs.

* Strengthening governance: Longer tenures for CMDs/Directors are being rolled out to ensure leadership stability and strategic continuity.

* Performance-linked accountability: Leadership evaluation under the MoU framework is now tied directly to financial and operational performance (revenue, EBITDA, capex delivery, shareholder returns).

Strategic focus of PSUs

* EBITDA enhancement: Structured cost-optimization programs (IOCL’s SPRINT, HPCL’s Samriddhi) aim to improve throughput, returns, and efficiency.

* Accelerated capex and execution: Investment is being front-loaded into refining, pipelines, and petrochemicals, with strong emphasis on timely delivery of mega projects.

* Diversification into new-age growth drivers: Greater allocation toward petrochemicals, natural gas, and renewables, positioning PSUs for long-term relevance in India’s energy transition.

View : 

* Improved fundamentals and policy backing bolster investment case: MoPNG’s clear message is that O&G PSUs are financially stronger, strategically agile, and better governed than perceived. With earnings visibility, policy support, and diversification into new-age energy businesses, the sector is positioned for a potential re-rating. While regulatory risks remain, improving return profiles and reduced intervention risk strengthen the investment case.

* PLNG, MAHGL and HPCL remain our preferred picks: PLNG – We maintain our positive stance on PLNG, with the stock trading at trough valuations. The commissioning of expanded regas capacity at Dahej by Dec’25 provides a visible near-term earnings catalyst. HPCL remains our preferred pick among the three OMCs given its leverage towards marketing. MAHGL remains well-positioned among CGDs with cheap valuations, a strong volume growth outlook, limited EV/alternate fuel substitution risk, and emerging regulatory tailwinds.

For More Research Reports : Click Here 

For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412