Shares of Oil India rose by 3% on Thursday, hitting ₹593.80, after Motilal Oswal Financial Services (MOFSL) reiterated its 'Buy' rating with a target price of ₹720. The brokerage cited attractive valuations and strong production growth projections as key reasons behind the optimism. For those considering share market investment, Oil India's outlook remains favourable, especially in light of its robust production forecasts and valuation metrics.
Strong production outlook
MOFSL noted that Oil India’s projected 9% compound annual growth rate (CAGR) for production between FY24 and FY27 makes it a resilient option for share market investment, even amidst fluctuations in crude oil prices. The stock has recently dipped 23% from its August 30 high of ₹767.30, reflecting weak oil price trends, but remains well-positioned for growth with expanding capacity.
The ongoing capacity expansion of Oil India’s Numaligarh Refinery (NRL) from 3 million metric tonnes (mmt) to 9 mmt is expected to be completed by December 2025, boosting its long-term value. As a result, those looking to make a share market investment in energy stocks may find this to be a strong opportunity.
Valuation metrics and target price
MOFSL has set a target price of ₹720, reflecting confidence in the stock's growth potential. The brokerage estimates that Oil India's standalone business when adjusted for investments and NRL's stake, trades at a relatively low 7x FY27E price-to-earnings (P/E) ratio. This valuation is seen as attractive, making it a potentially smart share market investment for investors.
Even if crude oil prices drop to $60 per barrel (bbl) and gas prices fall to $6 per million British thermal units (mmbtu), the brokerage's target price will only reduce slightly to ₹563 per share. This underscores the company's resilience in the face of market volatility, making Oil India a favourable pick for long-term share market investment strategies.
Risks and opportunities
Oil India’s reliance on crude prices is a factor that share market investment enthusiasts need to monitor closely. Recent trends in Brent crude prices, which averaged $80.3 per barrel in Q2 FY25, indicate that oil prices could continue to impact the stock's performance in the short term. However, the long-term outlook remains strong, particularly with the continued expansion of its NRL capacity.
For investors, Oil India offers an attractive proposition with limited downside risk. The brokerage’s analysis highlights the stock's growth potential, even in challenging conditions. Therefore, if you're seeking to diversify your share market investment portfolio, Oil India’s stock presents a balanced option with solid fundamentals.
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