ONGC share price rises more than 7%, scales 52 week highs; Should you Buy, Sell or Hold the stock?

The rising Crude oil prices are likely to have lifted investor sentiments. The Brent Crude oil that had dipped to close to $75 a barrel levels at start of January have risen to around $82 a barrel levels. The Houthis attacks on oil tankers in red sea have contributed to almost 9% rise in Brent prices recently on fears of supply disruption thus leading to an improvement in investor sentiments for up stream oil and Gas producers as ONGC.

Brent crude prices had averaged at $83.7 a barrel in 3QFY24, down 3.4% sequentially, as demand concerns continued to overshadow the impact of supply cuts by OPEC plus countries. Analysts however had expected the crude prices to remain at $80-85 a barrel levels in 2024.

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Analysts at  Motilal Oswal Financial Securities already had said that they expect Brent prices to remain at $85 a barrel during FY25-26 as global oil and oil product inventories stand at the lower end of the last five-year average and as production cuts by OPEC plus are expected to continue through CY24

The movement in Crude prices though may have impact on investor sentiments, however the rise in Crude prices is unlikely to improve ONGC’s net realisations meaningfully since government keeps on adjusting windfall tax of crude oil every fortnight. The rise in crude prices means that government will raise wind fall taxes on Oil and this mean that ONGC net realisations may remain close to $70-75 a barrel levels , as per analysts. 

For instance the windfall-adjusted oil realizations had remained at similar levels during Q3FY24 despite fall in crude prices during Q3.  windfall-adjusted oil realizations are estimated to have sustained at $75 a barrel levels as per Emkay Global Financial Services. 

The net realsiations though may remain rangebound, nevertheless add to earnings outlook of ONGC. The rise in oil & Gas production may also lead to a rise in ONGC’s earnings outlook.  Analysts say that at current valuations the stock seems attractive.

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Analysts at Antique Stock Broking said that Both upstream companies (Oil India and ONGC) are set to deliver significant production growth and incremental investments are likely to be value accretive. They believe the Indian upstream valuation discount to global valuation needs to narrow.

Meanwhile in the quarter gone by some decline in production and rise in operating costs may impact ONGC’s performance. 

Those at Emkay estimate an Ebitda decline of 14% sequentially for ONGC, on higher operating expenses and lower output, 

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: 29 Jan 2024, 01:04 PM IST