What Is The Future Prospect For Oil & Gas And Indian Oil Corporation Limited (NSE:IOC)?

By
Simply Wall St
Published
March 04, 2018
NSEI:IOC
Source: Shutterstock

Indian Oil Corporation Limited (NSEI:IOC), a ₹1.81T large-cap, is an oil and gas company operating in an industry which has persevered through a continued decline in oil prices since 2014. However, energy-sector analysts are forecasting for the entire industry, a somewhat weaker growth of 6.21% in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the Indian stock market as a whole. Is the oil and gas industry an attractive sector-play right now? Today, I will analyse the industry outlook, as well as evaluate whether Indian Oil is lagging or leading its competitors in the industry. See our latest analysis for Indian Oil

What’s the catalyst for Indian Oil's sector growth?

NSEI:IOC Past Future Earnings Mar 5th 18
NSEI:IOC Past Future Earnings Mar 5th 18
The oil and gas sector has been negative 40% in the past five years, due to the oil price crash. Large energy businesses have slashed their growth expenditures by over 40% since the collapse, and reduced headcount by nearly half a million workers. Only now has the sector begun to emerge from its turmoil, and in the previous year, the industry saw growth in the forties, beating the Indian market growth of 14.46%. Indian Oil leads the pack with its impressive earnings growth of 65.10% over the past year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be -2.46% compared to the wider energy sector growth hovering of 6.21%, next year. As a future industry laggard in growth, Indian Oil may be a cheaper stock relative to its peers.

Is Indian Oil and the sector relatively cheap?

NSEI:IOC PE PEG Gauge Mar 5th 18
NSEI:IOC PE PEG Gauge Mar 5th 18
The oil and gas industry is trading at a PE ratio of 20.98x, relatively similar to the rest of the Indian stock market PE of 25.3x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a higher 11.91% compared to the market’s 9.65%, potentially illustrative of a turnaround. On the stock-level, Indian Oil is trading at a lower PE ratio of 9.1x, making it cheaper than the average oil and gas stock. In terms of returns, Indian Oil generated 19.60% in the past year, which is 7.69% over the oil and gas sector.

Next Steps:

Indian Oil is an energy industry laggard in terms of its future growth outlook. This is possibly reflected in the PE ratio, with the stock trading below its peers. If the stock has been on your watchlist for a while, now may be the time to dig deeper. Although the market is expecting lower growth for the company relative to its peers, Indian Oil is also trading at a discount, meaning that there could be some value from a potential mispricing. However, before you make a decision on the stock, I suggest you look at Indian Oil's fundamentals in order to build a holistic investment thesis.
  1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  2. Historical Track Record: What has IOC's performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
  3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Indian Oil? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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