ONGC share price gains over 1% as analysts maintain positive outlook despite decline in crude prices
- Stock Market Today- The Brent crude prices have softened to around $81/barrel from close to $100/barrel in September. Nevertheless, analysts maintain positive outlook on upstream oil producers prospects on favorable net realisations, rising output. A good dividend yield remains an added attraction.
The ONGC share price ( Oil and Natural Gas Corporation Ltd ) gained up to 1.1% in intraday trades on Monday, the day when benchmark indices traded in the red. The Brent crude prices also have been softening. Analysts nevertheless maintain a positive outlook for upstream oil producers and expect stable net realisations for ONGC. The rising production could provide some more upside to earnings while good dividend yield is an added advantage.
ONGC share price had touched 52-week highs last week and is trading close to those levels.
The decline in crude prices seen recently from highs though should have meant a decline in net realizations for the upstream oil producer, nevertheless introduction of windfall tax by the government has meant that oil producers as ONGC will see net oil realizations range bound but stable. The windfall taxes introduced by the government last year are adjusted every fortnight depending on the crude oil movement. If crude prices rises, the windfall taxes also are raised and if crude prices decline, the windfall taxes also decline. This keeps net realizations for oil producers around similar levels.
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Analysts at JM Financial Institutional Securities have maintained positive ratings and their target price for ONGC and and Oil India Ltd given strong dividend play (of 6-8%) and also because current market price is discounting $55-60 a barrel net crude realisation as per them , while their target price is based on estimated $65 a barrel net crude realisation, and various changes in windfall tax suggesting the government is fine with ONGC and Oil India making net crude realisation of $75 a barrel. Brent crude price of $75-80 a barrel is a sweet spot for ONGC and Oil India, as it improves visibility for net crude realization of $75 a barrel by by eliminating the risk of ad hoc fuel subsidy burden, added JMFL.
The Brent crude oil prices incidentally after having risen and moved closer to $100 a barrel levels in September however have come down to around to $80 a barrel level now.
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For ONGC apart from oil realisations and good dividend yield, even rising production could lead to some earnings upgrades, analysts feel.The company expects KG-98/2 fields' production to commence by November 2023 and ramp-up to peak production of 10mmscmd gas and 45,000barrels per day crude oil in FY25. Analysts at Elara Securities India Pvt Ltd said that consequently, standalone production is set to increase 5% for crude oil and 14% for natural gas over FY24-26 and standalone EBITDA would increase 12% during the same period.
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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