ONGC, Oil India gain 3%; hit over 8-month highs

In past one month, Oil India has rallied 23%, while, ONGC surged 11%, as compared to 0.33 per cent decline in the S&P BSE Sensex.

Shares of upstream oil companies, Oil & Natural Gas Corporation (ONGC) and Oil India hit over eight-month high, as they gained 3 per cent each in Monday’s intra-day trades on expectations of better profitability due to sustained higher crude oil prices and gas realizations. Oil prices reached $86/bbl driven by optimism around demand from top oil importer China.

Among the individual stocks, Oil India was up 3 per cent at Rs 264.95 on the BSE in Monday’s intra-day trade. The stock was trading at its highest level since June 16, 2022. It had hit a 52-week high of Rs 306 on June 6, 2022.

In past one month, the stock of state-owned exploration & production company has surged 23 per cent after the company reported highest-ever profit after tax (PAT) in December quarter (Q3FY23) on strength of better pricing and higher output of crude oil and natural gas.

In Q3FY23, Oil India’s oil and gas production was at 0.81 MTPA (+2 per cent quarter-on-quarter (Q/Q))) and 806mscm (-2 per cent Q/Q). The company has aggressive growth plans and expects 30 per cent/60 per cent increase in oil and gas volumes to 4MTPA/5BCM by FY25E, with commencement of brownfield expansion projects in Assam.

On consolidated basis, Oil India reported consolidated EBIDTA/PAT of Rs 4,180 crore (+55 per cent Q/Q)/Rs 2,530 crore (+20 per cent Q/Q), led by healthy crude oil & gas realization along with steady Numaligarh Refinery (NRL) performance.

Oil India had paid total interim dividend of Rs 14.50 per share for FY23. Analysts at Prbhudas Lilladher has increase FY23E dividend payout to Rs 2,420 crore vs Rs 1,160 crore earlier (9MFY23 dividend payout at 22.5 per cent to Rs 14.5/sh).

The brokerage firm believes Oil India’s earnings will ride on new capacity addition across crude oil, natural gas and refinery. It maintains ‘BUY’ with target price of Rs 305, based on 3.0x/EV/E FY24E and add value of investment in IOCL.

Our BUY recommendation on Oil India with a target price of Rs 280 is premised on an increase in crude price realisation and an improvement in domestic gas price realisation, HDFC Securities said.

Meanwhile, shares of ONGC too were up 3 per cent at Rs 159.55 on the BSE. The trading volumes at the counter nearly doubled today. A combined 10.7 million equity shares changed hands on the NSE and BSE till 02:08 PM. However, in past one month, ONGC has gained 11 per cent and underperformed when compared with Oil India (up 23 per cent).

Despite strong earnings, stock remains subdued due to concerns about production growth, weak results of subsidiaries HPCL and OVL, and windfall tax, analysts at ICICI Securities said.

However, the brokerage firm said it note even at a realisation of $75/bbl for oil and Rs 20-21/scm for gas, standalone and consolidated EPS for FY23E of Rs 41.5/sh and Rs 40.2/sh, respectively, are well above the historical averages.

With full production of KG field available by FY25E, FY25E EPS of Rs 51.6 signifies stronger earnings prospects, even with capped oil and gas realisations (due to windfall tax and Kirit Parikh Committee recommendations). We believe valuations of 3.2x FY24E consolidated EPS and 2.5x EV/EBITDA remain attractive, the brokerage firm said with Reiterate BUY rating on ONGC.