ONGC (Oil and Natural Gas Corporation) emerged as the highest gainer among Nifty stocks in morning trades on Monday, with a gain of more than 2%. The stock is also trading close to its 52-week highs, reflecting positive investor sentiments.
Despite a previous decline in Brent crude prices impacting investor confidence, sentiments have rebounded. Analysts suggest that ONGC’s net crude oil realizations are unlikely to be significantly affected, given the ongoing adjustment for windfall taxes. Estimates indicate that net realizations for upstream oil producers like ONGC are expected to remain close to $70.
With Brent Crude cooling down to $76 a barrel, analysts anticipate minimal impact on ONGC’s earnings. The key upside trigger for ONGC could come from a rise in oil and gas production. The company has committed to increasing production to 50 million metric tonnes of oil equivalent by FY28, driven by 23 ongoing projects with 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 expected to commence soon. ONGC’s international arm, ONGC Videsh Ltd, is also likely to see a rise in production, with a medium-term target of 15 million metric tonnes of oil equivalent.
Analysts suggest that the increase in production could serve as an earnings trigger even if crude net realizations see limited upside. Post-Q2, analysts at JM Financial maintained a Buy rating on ONGC, emphasizing its strong dividend play. The target price was revised to ₹225, considering the market price discounting $55-60 a barrel of net crude realization. The Buy rating was supported by a robust dividend yield of 6-8%.”
