ONGC soars to a 32-month high, up 5% on improved outlook

Higher oil realisations and modest production would spur up ONGC's earnings before interest tax and depreciation and amortization (EBITDA) by 1.8x in the October-December quarter.

Shares of Oil and Natural Gas Corporation (ONGC) rallied 5.5 per cent, and registered a 32-month high at Rs 174.65 on the BSE in Friday’s intra-day trade on improved outlook due to rising oil prices. Higher oil realisations and modest production would spur up ONGC’s earnings before interest tax and depreciation and amortization (EBITDA) by 1.8x year-on-year (YoY) in October-December quarter (Q3FY22).

The stock of state-owned exploration & production company surpassed its previous high of Rs 172.80 touched on October 6, 2021. It traded at its highest level since May 2019.

Brent crude, the global benchmark, touched 90 dollars a barrel for the first time in seven years as rising political tensions between Ukraine and Russia added to concerns that supply could get even tighter.

Although OPEC+ is yet to roll back its 3.4mbopd of production cuts initiated in April 2020, fast recovery in oil demand, switch from high cost gas to oil, and low inventories resulted in Brent touching a seven year high.

 “Although the ramp up in oil and gas production has been a sore issue for investors, the rise in oil and gas prices is likely to result in FY24E adjusted profit after tax (PAT) being 1.7x that of FY21. Ramp up of production from the KG basin could be another positive trigger for the ONGC stock,” analysts at Motilal Oswal Financial Services said in oil & gas sector update. The brokerage firm recommend a Buy on the stock, raising target price to Rs 210 from Rs 195/share.

For Q3FY22, ONGC is expected to post profit after tax (PAT) of Rs 7,932 crore, up 530 per cent YoY and down 57 per cent QoQ as the company had negative tax outgo in Q2FY22.

Oil & gas production is expected to decline 2.7 per cent YoY and 4.2 per cent YoY, respectively. Oil production is expected to be flat QoQ while gas production is expected to grow 1.8 per cent QoQ. ICICI Securities expects increase in realisations YoY as well as QoQ to $77.9/bbl due to higher average crude oil prices. Domestic gas realisations are also expected to be higher at US$2.9/bbl (on GCV basis) post revision in APM gas prices, the brokerage firm said in Q3 result preview.