ONGC Share Price Surges Over 7% to Hit 52-Week Highs: Buy, Sell, or Hold?

Oil and Natural Gas Corporation (ONGC) witnessed a more than 7% increase in its share price during Monday’s intraday trading session, reaching new 52-week highs. The stock emerged as one of the top gainers among Nifty-50 stocks.

Investor sentiments appear to be buoyed by the upward movement in crude oil prices. Brent Crude oil, which had dipped to nearly $75 a barrel in early January, has rebounded to around $82 a barrel. Recent Houthi attacks on oil tankers in the Red Sea contributed to a nearly 9% surge in Brent prices, driven by fears of supply disruptions. This has positively impacted investor sentiments for upstream oil and gas producers like ONGC.

During Q3FY24, Brent crude prices averaged $83.7 a barrel, down 3.4% sequentially. Analysts had initially expected crude prices to remain in the range of $80-$85 a barrel throughout 2024.

Motilal Oswal Financial Securities analysts anticipate Brent prices to hover around $85 a barrel during FY25-26. They cite lower global oil and oil product inventories, coupled with ongoing production cuts by OPEC plus countries through CY24, as contributing factors.

While the movement in crude prices may influence investor sentiments, the rise is not expected to significantly impact ONGC’s net realizations due to the government’s adjustment of windfall taxes on crude oil every fortnight. Despite the increase in crude prices, analysts project that government-imposed windfall taxes will keep ONGC’s net realizations at approximately $70-$75 a barrel.

For instance, during Q3FY24, windfall-adjusted oil realizations reportedly remained around $75 a barrel, according to Emkay Global Financial Services.

Although net realizations may remain relatively stable, they contribute positively to ONGC’s earnings outlook. The rise in oil and gas production is also expected to boost ONGC’s earnings prospects. Analysts find the current valuations of the stock attractive.

Antique Stock Broking analysts emphasize that both upstream companies (Oil India and ONGC) are poised for significant production growth, and incremental investments are likely to be value accretive. They suggest that the valuation discount of Indian upstream companies compared to global counterparts needs to narrow.

However, it’s noted that in the previous quarter, some decline in production and an increase in operating costs may impact ONGC’s performance. Emkay estimates a 14% sequential decline in Ebitda for ONGC, primarily attributed to higher operating expenses and lower output.

Investors are advised to consider the potential implications of these factors while evaluating whether to buy, sell, or hold ONGC shares.