Mumbai: Oil marketing companies and upstream companies are likely to re-rate in 2020 as privatization theme picks up and there is sustained strength in marketing business performance, said foreign brokerage UBS.
Moreover, refining margins are likely to recover due to International Maritime Organisation norms 2020 and Bharat Stage VI norms, it said.
Gas transmission businesses could recover with higher availability of domestic gas and liquefied natural gas, said UBS.
The brokerage has upgraded GAIL India to buy and downgraded Gujarat Gas and Mahanagar Gas to sell.
UBS has retained buy ratings on Reliance Industries, oil marketing companies and Oil - Natural Gas Corporation.
The brokerage said RIL, BPCL, ONGC, and GAIL are its most favoured stocks:Reliance IndustriesCMP: Rs 1,547.70Rating/Target Price: Buy/1,750Refining complex upgrades were completed ahead of schedule for IMO 2020, with the petcoke gasifier also under stablisation, said UBS.
Petrochemical margins face near-term headwinds; however, feedstock flexibility and integration are providing some respite, it said.
The brokerage expects re-organization of Jio and the digital platform strategy to be a compelling investment proposition.
UBS expects retail segment performance to remain strong with robust margins.
Thecompany remains on track towards deleveraging and right-sizing the balance sheet, said UBS.
BPCLCMP: Rs 470.25Rating/Target Price: Buy/600BPCL has prepared ahead of schedule for IMO 2020 and will benefit from higher complexity and widening light-heavy differentials, said UBS.
The brokerage said its superior marketing performance is reflected in its stable market share and highest throughput per outlet among state-owned oil marketing companies.
Strategic privatization could providea significant upside case, said UBS.
ONGCCMP: Rs 124.10Rating/Target Price: Buy/200The brokerage estimates that ONGC is discounting nearly $50 per barrel Brent and has been trading significantly below long-term valuation multiples.
The fundamentals remain strong, driven by a stable oil price outlook, no cooking fuelsubsidy burden and diversification of earnings from downstream investments, said UBS.
GAILCMP: Rs 125.40Rating/Target Price: Buy/160The brokerage expects GAIL's earnings tol rebound with increased volume from the gas transmission and marketing segments, as well as a recovery of the commodity segment.
Major pipeline projects, including the Urja Ganga project and the Kochi-Mangalore pipeline, are coming online in FY21-22, said UBS.
The brokerage expects the petchem and LPG segments to return to higher profitability as of FY21-22, as commodity prices seem to have bottomed out.