ONGC, Oil India surge up to 8% amid heavy volume on positive outlook

Analysts at Emkay maintain positive view on B2B oil & gas, as reforms wrt the USD75/bbl assured post windfall tax oil realization and the USD6.5/mmbtu gas realization are unlikely to change.

Shares of state-owned upstream companies Oil and Natural Gas Corporation (ONGC) and Oil India (OIL) rallied up to 8 per cent, amid heavy volumes, on positive outlook.

Shares of OIL surged 8 per cent to Rs 658.10, while ONGC rallied 6 per cent to Rs 275 on the BSE in Tuesday's intraday trade.

At 02:28 PM, these stocks were up 6 per cent as compared to 0.25 per cent rise in the BSE Sensex. Average trading volume on these counter jumped 1.5 times against their two-week average volume. 

Shares of ONGC had hit a 52-week high of Rs 292.95 on May 3, and OIL had touched a record high of Rs 682.20 on June 3.

Analysts at Emkay Global Financial Services maintain their positive view on B2B oil & gas companies as reforms with respect to the $75/bbl assured post windfall tax oil realisation and the $6.5/mmbtu gas realisation are unlikely to change. Further, production growth outlook is not dependent on any pending reforms.

"We have not assumed premium for APM gas from new wells either. Hence, after the major stock correction on June 4, 2024, there is a sizable stock upside vs our target prices of Rs 320/share and Rs 800/share for ONGC and Oil India, respectively," the brokerage firm said in post-Elections in analyst views.

Oil prices falling below $75/bbl is a risk, but the brokerage firm does not foresee a major downside, with Opec+ cuts being extended by a year. Valuations at 8-10x PER are also reasonable, compared with other PSUs, the brokerage firm said.

Analysts at Elara Capital, too, reiterated their 'Buy' rating on ONGC with a target price of Rs 343 per share given production growth visibility through FY24-26. Also, new guidance that growth may be maintained even beyond FY26, gives assurance.

This, with improved realisation for oil & gas with rising share of newer fields and better production at ONGC Videsh (OVL), bode well, the brokerage firm said in its Q4 result update.

Going forward, the commencement of the large KG basin asset remains the key performance driver over FY25-26E. Analysts at ICIC Securities also expect conspicuous recovery in HPCL/MRPL's earnings prospects coupled with reducing leverage in ONGC’s consolidated balance sheet. The brokerage firm has a 'buy' rating on ONGC with a target price of Rs 340 per share.

Meanwhile, S&P Global Ratings, on May 29, revised the rating outlook to positive from stable on ONGC, on the back of long-term sovereign credit rating on India.

"It also reflects our expectation that ONGC will maintain its solid stand-alone creditworthiness, benefitting from a strong financial profile and status as a national oil company," the global rating agency said.

OIL’s production growth guidance remains robust, with drilling activity and development wells in old areas contributing to this growth. OIL is also applying new technologies to grow production. Capacity expansion for NRL (from 3mmt to 9mmt) would also be completed by Dec’25, which would drive further growth, Motilal Oswal Financial Services (MOFSL) said in result update.

OIL remains a strong conviction at 1.3x FY26E P/B (standalone) valuation. It is a unique play to benefit from the strong multi-year uptrend in both upstream and refining. The stock currently trades at a P/E multiple of 8.4x FY26E EPS and 6.4x FY26E EV/EBITDA. MOFSL value the stock at 8.5x FY26E standalone adj. EPS and add investments to arrive at target price of Rs 775.