In Monday’s morning trades, ONGC’s share price surged by more than 2%, making it the highest gainer among Nifty stocks. Notably, the stock is also hovering close to its 52-week highs.
Despite the earlier dip in investor sentiments due to declining Brent crude prices, ONGC’s stock rebounded. Analysts remain optimistic about ONGC’s net crude oil realizations, considering the ongoing adjustment of a windfall tax. Projections indicate that net realizations for upstream oil producers like ONGC are expected to stay around $70, according to various analyst estimates. For example, JM Financial analysts had anticipated Brent to average $75 a barrel in FY24, estimating ONGC’s net realizations at the same level.
With Brent Crude currently at $76 a barrel, the impact on ONGC’s earnings is expected to be minimal.
The key upside trigger for ONGC lies in the potential increase in oil and gas production. ONGC aims to boost production to 50 million metric tonnes of oil equivalent (mmtoe) by FY28, driven by 23 ongoing projects requiring a total capital expenditure of ₹60,000 crore. Gas production from Cluster II of KG-DWN-98/2 began in March 2020, and oil production is anticipated to commence shortly.
ONGC’s international arm, ONGC Videsh Ltd, is also poised for a production increase. Analysts at Motilal Oswal Financial Services Ltd (MOFSL) project a medium-term production target of 15 mmtoe for OVL, with a FY24 guidance of 11 mmtoe. OVL may expand its asset base, focusing on fields nearing production commencement in its acquisition strategy.
The rise in production serves as an earnings trigger, even if crude net realizations experience limited upside. JM Financial analysts, after Q2, maintained a Buy rating on ONGC due to its robust dividend play. The market price, discounting $55-60 a barrel of net crude realization, prompted an increased target price of ₹225. The Buy recommendation is driven by the strong dividend play, offering a yield of 6-8%.
aparna