ONGC share price: 2 key reasons why Jefferies expects more than 40% upside for the stock

Estimated read time 11 min read

Stock Market Today- Oil and Natural Gas Corporation (ONGC) share price has rebounded more than 10% since its June lows. The gains in ONGC share price is despite softness in crude prices..  The government recently had also reduced windfall tax on domestically-produced crude oil to 3,250 per tonne from 5,200, with effect from Saturday. The Brent prices that had passed $90 a barrel levels in April however are close to $80 levels now.

However with the adjustment of wind fall tax by the government in line with the movement in crude prices, the impact on net realizations of upstream oil & Gas producers as ONGC remains minimal.  The impact on ONGC share price with some movement in oil prices is sentimental say analysts.

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Analysts however expect ONGC share price to see gains led by rising production and better gas prices leading to ONGC’s earnings growth.

Analysts at Jefferies India Limited expect ONGC’s profitability to remains elevated compared to past averages considering policy continuity on pricing reforms is likely to continue and will be maintained after the elections. Hence the stock prices recent correction seems overpriced and offers investors a tempting entry point. The two key triggers for ONGC as per Jefferies are the rise in production from the KG basin by the third quarter of FY25 and also the  3QFY25 and also the accretion to profitability. 

Jefferies target price for ONGC’s share price at 390 indicates more than 40% upside for the stock

Two key reasons why Jefferies expects more than 40% upside

Profitability and earnings improvement with ongoing price reforms- Government continuity is likely to ensure continuity of pricing policy that has meant that ONGC maintains higher realization on nomination field oil ($ 75 a barrel) is expected. Also new production from the KG basin should continue to be exempt from the Special Additional Excise Duty (SAED). In addition, the gas pricing reforms (floor price + $  0.2 per mmbtu annual hikes from FY26 onwards over and above ceiling price), should aid higher profitability for ONGC.

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Production growth starting Q3FY25

With the installation of the central processing platform in the KG field, management anticipates that KG output will increase gradually starting in 3QFY25 and reach its peak in 4QFY25. With improved realizations more than balancing higher operating expenses, Jefferies analysts anticipate that KG production will contribute 11% to FY26 estimated consolidated Earnings before interest tax deprecation and amortisation

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions














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Published: 21 Jun 2024, 01:32 PM IST

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