Oil India rallies 7%, hits record high post Q1 results; ONGC surges 4%

Shares of Oil India hit a record high of Rs 654 as they rallied 7 per cent on the National Stock Exchange (NSE) in Friday's intraday trade. The rally comes despite the company reporting a 9 per cent year-on-year (Y-o-Y) decline in standalone profit after tax (PAT) of Rs 1,467 crore in the June 2024 quarter (Q1FY25) due to lower other income.

However, earnings before interest, tax, depreciation and amortisation (Ebitda), at Rs 2,540 crore, was largely in line with analysts' estimate as lower crude sales volume and realisation was offset by higher gas sales volume and realisation.

The stock of the state-owned upstream company surpassed its previous high of Rs 653, touched on July 12, 2024. At 11:08 AM, Oil India was trading 6 per cent higher at Rs 649 as compared to 1 per cent rise in the Nifty 50 index.

 

Analysts at JM Financial Institutional Securities have maintained their 'Buy' rating on Oil India with a revised target price of Rs 700 per share as risk-reward is still reasonable despite a strong rally and expectation that Opec+ will continue to support crude at around $75-80/bbl and the government allowing ONGC and Oil India to make net crude realisation of $75/bbl.

That apart, Oil India's earnings are expected to grow at 15-17 per cent CAGR over the next 3-5 years, driven by sharp 20-30 per cent output growth in the next 2-3 years, aided by commissioning of Indradhanush gas pipeline and expansion of Numaligarh Refinery (NRL) refinery from 3mmtpa to 9mmtpa.

Meanwhile, India's basins are under-explored and offer significant opportunities, according to Oil & Natural Gas Corporation (ONGC). Shares of ONGC, too, gained 4 per cent to Rs 335.85 on the NSE in the intraday trade today. The stock had hit a record high of Rs 344.70 on August 1, 2024.

Anand Rathi Share and Stock Brokers have a 'Buy' rating on ONGC with a target price of Rs 405 per share.

The brokerage firm said they prefer upstream companies, given greater clarity on oil and gas realisations along with volume growth. "We expect crude oil prices to stay around $80- 90/bbl as higher supplies from non-OPEC (the US, Guyana, etc.) and weak demand (~1m bpd demand growth in CY24, per the IEA) would be counterbalanced by Opec members' production cuts,” analysts said.

In their recent meeting on June 2, 2024, Opec+ agreed to extend most of these significant oil output cuts well into 2025 to support the market amid sluggish demand growth, high interest rates, and increasing US production. Opec+ decided to extend the 3.66 million bpd cuts by an additional year, lasting until the end of 2025, and to prolong the 2.2 million bpd cuts, until the end of September 2024. Furthermore, Opec+ will gradually phase out the 2.2 million bpd cuts over the year from October 2024 to September 2025.

"With new lease rounds being announced in China, Nigeria, Canada, Indonesia, and Norway recently, and with an increase in lease rounds planned for this year, awarded acreage could see an uptick in 2024. However, robust exploration outcomes, characterised by discovered barrels and lower investment costs, have led to increased operational efficiency and a significant reduction in global finding costs," ONGC said in its FY24 annual report.

That apart, the domestic upstream sector has experienced substantial policy changes and proactive decisions in recent years. The Government of India has introduced several initiatives aimed at enhancing exploration and production activities across the country.

The Government of India introduced the Hydrocarbon Exploration and Licensing Policy (HELP) on March 30, 2016, aimed at revitalising the Indian Exploration and Production (E&P) sector by transitioning from the Production Sharing mechanism to a Revenue Sharing mechanism for the award of exploration acreages.

Moreover, the Government of India has opened up 99 per cent of previously restricted 'No-Go' areas for Exploration and Production activities. This initiative is complemented by fiscal incentives aimed at facilitating early monetisation of fields and providing Marketing and Pricing freedom for natural gas. These measures are part of a broader effort to streamline operations and improve the ease of doing business in the E&P sector, ONGC said.