Morgan Stanley’s recent sector review ranks two state-owned exploration and production companies at the head of its list for India’s oil and gas industry, applying detailed sum-of-the-parts valuation frameworks to reach its conclusions.
Oil India Limited (OILI.NS)
Oil India is Morgan Stanley’s top pick among the companies covered. The bank values the firm’s domestic upstream business using a discounted cash flow model that applies an 11.9% cost of capital. The valuation assumes a production profile that extends through 2040 and applies zero terminal growth beyond that horizon.
Morgan Stanley applies separate treatments to Oil India’s non-core assets. Its 69.63% holding in Numaligarh Refinery Limited is valued at 7.0 times fiscal 2027 estimated enterprise value to EBITDA, a multiple the bank derives from global comparables. Investments intended to expand refining capacity are carried at one times book value. The company’s Russian exploration and production assets are assessed using a price-to-book approach, while Oil India’s shareholding in Indian Oil Corporation is measured with a 50% holding company discount to market price.
The bank identifies several upside risks to its base valuation for Oil India, including the potential for material exploration discoveries within the company’s portfolio, a reduction in operating costs, and successful completion of the Indradhanush pipeline project.
Oil & Natural Gas Corp. (ONGC.NS)
Ranked second by Morgan Stanley, ONGC and its wholly owned overseas arm ONGC Videsh are valued using a weighted average cost of capital of 12% and an assumption of zero terminal growth. The bank applies holding company discounts and haircutting approaches to the valuation of ONGC’s equity stakes in downstream and infrastructure names.
Morgan Stanley values ONGC’s 51.11% stake in Hindustan Petroleum Corporation at a 30% holding company discount to the market price. Other equity investments held by ONGC - including stakes in Indian Oil Corporation, GAIL, Petronet LNG, and Mangalore Refinery and Petrochemicals - are each marked down by 40% relative to current market prices to reflect market volatility.
For ONGC, the bank cites upside scenarios such as production growth in domestic and international operations (with explicit reference to Colombia), potential license extensions in Vietnam, the unwinding of windfall taxes, improvements in refinery subsidiary profitability, and the prospect of higher dividend distributions.
The analysis stresses asset-level valuation distinctions and discrete upside scenarios for the two companies, rather than a single blended multiple applied across the sector. Morgan Stanley’s approach combines DCF assumptions for operating businesses with market-based multiples and pragmatic holding-company discounts for listed equity stakes.
Investors and market participants can take from the report both the specific valuation mechanics Morgan Stanley used for each company and the key catalysts that could drive upside in the firms’ share prices if realized.