ONGC’s Stock Surge: Jefferies Sees 40% Upside – Here’s Why

Mumbai: The share price of Oil and Natural Gas Corporation (ONGC) has bounced back by more than 10% from its low point in June. Despite the recent dip in crude oil prices, ONGC’s stock has been performing well. This positive trend continues even though Brent crude prices, which had surpassed $90 a barrel in April, have now fallen to around $80.

Government’s Windfall Tax Cut

A key factor supporting ONGC’s share price is the government’s recent reduction of the windfall tax on domestically-produced crude oil. The tax was cut from ₹5,200 per tonne to ₹3,250 per tonne, effective from last Saturday. Analysts believe that this adjustment, aligned with movements in crude prices, has a minimal effect on ONGC’s net earnings. Any impact on ONGC’s share price due to changes in oil prices is seen as more emotional than practical.

Rising Production and Gas Prices

Analysts are optimistic about ONGC’s future, expecting gains driven by increasing production and improved gas prices. According to Jefferies India Limited, ONGC’s profitability is set to remain high, given the likely continuation of supportive pricing policies, especially after upcoming elections. This presents a promising opportunity for investors, as the recent dip in ONGC’s stock price appears to be an overreaction, offering a good entry point.

Jefferies’ Positive Outlook

Jefferies has set a target price of ₹390 for ONGC’s share, predicting more than a 40% upside. Two main factors support this optimistic view:

1. Policy Continuity and Profitability: ONGC is expected to maintain high profitability due to continued favorable pricing policies. The government’s consistent pricing reforms allow ONGC to achieve higher returns from its oil fields. Moreover, new production from the Krishna Godavari (KG) basin is likely to remain exempt from the Special Additional Excise Duty (SAED). Gas pricing reforms, which include a floor price and annual hikes starting from FY26, should further enhance ONGC’s profitability.
2. Production Growth in KG Basin: ONGC is set to boost its production starting from the third quarter of FY25 with the installation of a central processing platform in the KG field. Production is expected to gradually increase, peaking in the fourth quarter of FY25. Jefferies’ analysts predict that the KG basin will contribute 11% to ONGC’s estimated consolidated Earnings Before Interest, Tax, Depreciation, and Amortisation (EBITDA) for FY26. Despite higher operating costs, improved revenue is expected to more than compensate.

With these factors in play, ONGC’s shares are positioned for significant growth, making it a compelling option for investors looking for substantial returns.