ONGC regains Rs 2-trn market cap as stock jumps 8% on higher oil prices

In past one month, the stock has surged 31 per cent as against a 2 per cent rise in the S&P BSE Sensex; Crude oil prices have soared 47 per cent on YTD basis

Oil and Natural Gas Corporation (ONGC) has regained its Rs 2-trillion market capitalisation (market-cap) mark as the stock rallied another 8 per cent to Rs 159.75 on the BSE in Tuesday’s intra-day trade on the back of higher crude oil prices. The stock of the state-owned oil exploration & production (E&P) company was trading at its highest level since November 2018.

The rising domestic gas supply and improvement in oil and gas realisation should drive upstream companies' earnings growth and valuations.

At 10:57 am; ONGC was trading 7.5 per cent higher at Rs 158.60, with a market of Rs 199,523 crore, the BSE data shows. In comparison, the S&P BSE Sensex was down 0.09 per cent at 59,246 points. In past one month, the stock has surged 31 per cent, as against a 2 per cent rise in the benchmark index.

The crude prices hit three-year high after Opec and allies decided to continue with their oil supply plan in their latest meeting. Opec+ agreed to increase oil supply by 400K bpd in November as per the earlier plan.

The Organization of the Petroleum Exporting Countries, Russia and their allies, known as OPEC+, have faced calls from big consumers, such as the United States and India, for extra supplies after oil prices surged more than 50 per cent this year. Brent crude roared above $81 a barrel on news that the group would stay with its plan for gradual additional production, rather than offering more supply to the market, the Reuters reported.

Brent crude price is currently at >USD 75/bbl, up 47 per cent YTD, driven by recovery in global demand with opening up of economies. The US was hit by Hurricane Ida in July end, which has resulted in disruption of production from Gulf of Mexico (GoM) of ~1.7mb/d in August. The International Energy Agency (IEA) expects supply from GoM to normalise by Q4CY22.

With crude oil and product inventory in lower half of the five-year range and EIA estimating global crude oil supply growth to lag demand growth in 2021 as global recovery continues to gather pace, we see an upside risk to crude oil prices, HDFC Securities said in sector update.

We expect, in FY23E, ONGC (standalone) to produce 23.0 mmt of oil and 24.8 bcm of gas, and Oil India to produce 3.2 mmt of oil and 2.6 bcm of gas. Increasing gas prices and rising Brent crude oil price should improve realisation and in turn drive earnings CAGR of 30-54% over FY21-FY23E for ONGC and OIL. ONGC should also benefit from increase in gas production by up to 12mmscmd over FY21-25E as production from its KG basin blocks, the brokerage firm said.