ONGC nears record high, up 5% on strong growth prospects; OIL at new peak

ONGC stock hit an over nine-year high at Rs 303, and was trading close to its record high of Rs 314.67 touched on June 9, 2014.

Shares of Oil and Natural Gas Corporation (ONGC) hit an over nine-year high at Rs 303, as they rallied 5 per cent on the BSE in Monday’s intra-day trade amid heavy volumes in an otherwise subdued market on hopes of strong growth. The stock of the state-owned upstream company was trading close to its record high level of Rs 314.67 touched on June 9, 2014.

At 02:46 pm; ONGC was trading 4.6 per cent higher at Rs 301.55, its highest level since September 9, 2014. The average trading volumes at the counter more-than-doubled with a combined 14.39 million shares having changed hands on the NSE and BSE. In comparison, the BSE Sensex was down 0.12 per cent at 79,899.

Meanwhile, shares of Oil India (OIL) hit a new high at Rs 517, and had rallied nearly 6 per cent in intra-day trades. Currently, the stock was quoting 2 per cent higher at Rs 499.55.

Brokerage firm JM Financial Institutional Securities reiterated its 'BUY' rating on ONGC (revised target price (TP) of Rs 325) and Oil India (revised TP of Rs 555) given strong 4-6 per cent dividend potential and also because CMP is discounting only ~$65/bbl net crude realisation. The brokerage firm said its TP is based on $75/bbl net crude realisation.

ONGC and Oil India’s net crude realisation adjusted for windfall tax will continue to be capped at ~$74/bbl with slightly higher gross crude realisation (as Brent crude price averaged $84.9/bbl in 1QFY25 vs. $83.1/bbl in 4QFY24) being offset by slight rise in windfall tax.

ONGC and Oil India’s gas realisations are expected to be steady quarter-on-quarter (QoQ) with domestic administered pricing mechanism (APM) gas realisation being capped at $6.5/mmbtu. Hence, Oil India’s Q1FY25 earnings before interest, taxes, depreciation, and amortization (EBITDA) is expected to be marginally higher QoQ. However, ONGC’s Q1FY25 EBITDA is expected to be down 7.2 per cent QoQ due to higher opex, JM Financial Institutional Securities said in its oil and gas sector update.

Meanwhile, ONGC is expected to improve its earnings performance backed by increased production at KG 98/2 field, improved realisations, monetisation of discoveries, increased capital expenditure (capex) and potential adjustment of windfall tax, according to Geojit Financial Services.

The company plans to increase production at its KG 98/2 field to 45,000 barrels by Q4FY25 from the current 12,000 barrels. It also expects to achieve a gas production rate of 10 million cubic meters per day by Q4FY25. Moreover, ONGC expects to raise its production from the current 39.45 mmtoe to ~47 mmtoe by FY27. It aims to take oil production to 22 mmt and gas production to about 25.5 bcm by FY27.

The ramp-up of the KG 98/2 is expected to boost ONGC’s oil and gas production in the coming years. Additionally, higher prices for its produce will support its performance as the windfall tax does not apply to KG 98/2. Furthermore, monetizing new discoveries, securing premium gas prices for production from nomination field, and potential improvement in net realisations for crude oil are expected to enhance earnings. Moreover, the company’s long term strong production guidance further assures better performance in the future, the brokerage firm had said in the Q1FY24 result update with ‘BUY’ rating on stock and target price of Rs 327 per share.