Recommendation From Exploration & Production Sectors
This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon.
Hindustan Oil
Exploration OIL YOUR PORTFOLIO
HERE IS WHY
Robust expansion initiatives ·
Strong balance sheet and debt free status ·
Return ratios showing a marked improvement
The oil & gas industry is among the eight core industries in India and developments and policies relating to the sector bears quite an influence on the other sections of the economy. The government is adopting several policies to meet the rising demand for oil and gas in the economy. Recently, the government allowed 100 per cent Foreign Direct Investment (FDI) in the oil & gas sector, which is attracting investments in the sector. This leads us to select Hindustan Oil Exploration Company Ltd. (HOECL) as our “Low Priced Scrip” pick for this issue.
HOECL is an oil & gas company engaged in the exploration and production of hydrocarbons, crude oil and natural gas. It is the first private company in India to have entered oil & gas exploration. The company has a participating interest in nine oil & gas fields in India. The company provides geological and geophysical services relating to the exploration of oil and natural gas and other oil field services. It enjoys a diverse geographical footprint with a wellestablished presence in 4 out of the 7 producing basins in India. Its oil & gas assets consist of operated and nonoperated acreages in Assam-Arakan, Cauvery, Cambay basins, Rajasthan and Pranhita-Godavari basins in India. The company has a fully owned subsidiary named HOEC Bardahl India Ltd, which is engaged in marketing of fuel or engine additives.
On a consolidated basis, the total income from operations declined by 12.51 per cent to Rs62.39 crore in Q2FY20 from Rs71.31 crore in the same period of FY19. The EBITDA declined by 27.49 per cent to Rs40.41 crore in Q2FY20 from Rs55.73 crore in the same quarter previous year. The EBITDA margin stood at 64.76 per cent in Q2FY20 as against 78.15 per cent in the same quarter of FY19. The net profit declined by 10.41 per cent to Rs39.98 crore in Q2FY20 from Rs44.63 crore in the same quarter of FY19. The company is debt free.
The government initiated policy changes and came up with bids for Discovered Small Fields to take advantage of unexploited discoveries. These changed policies allowed HOECL to introduce B-80 block. The B-80 block fits into low-risk strategy of HOECL and it is located at Mumbai High basin. The delivery of this project will increase oil production from the current 13 per cent upto 30 per cent
The company commissioned Hollong Modular Gas Processing Plant in Dirok field, Assam in March 2018. This plant is delivering increasing gas sales volumes quarter after quarter. The Dirok field plant is contributing about 15 per cent of Assam’s Gas production. HOECL’s success with the Dirok project will help it to embark on the next two development projects in the North-East: Dirok phase-II and Kharsang phase-I in the coming months. Through this expansion, the company is aiming to increase capacity from 35 mmscfd to 55 mmscfd
On the valuation front, the stock of HOECL is trading at a PE multiple of 8.23x. The valuation stands attractive than its peer group companies. By the virtue of above factors, we recommend our readers-investors to BUY this stock.
