Oil exploration stocks ONGC, Oil India gain up to 6.5% on higher crude oil prices – brokerages see upside till 41%

On the back of rising crude oil prices, shares of oil exploration and production companies Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL) surged up to 6.5 per cent on the BSE intraday during Monday’s trading sessions. 

Individually, OIL shares gained nearly 6.5 per share to Rs 266.95 per share, near its 52-week high of Rs 267.7 per share that they touched on October 1, 2021, while the state-owned ONGC shares jumped 3 per cent to hit a day’s high level of Rs 156 per share on the BSE intraday. In comparison, the S&P BSE Sensex was down 0.26 per cent at 55,621 points at 12:11 PM. 

In the last five sessions, Oil India/ ONGC shares have outperformed the market by gaining 16/5 per cent respectively on the BSE as compared to a 0.15 per cent gain in the S&P BSE Sensex. 

Oil prices rose more than $2 in early trade on Monday after Saudi Arabia raised prices sharply for its crude sales in July, an indicator of how tight supply is even after OPEC+ agreed to accelerate its output increases over the next two months, the Reuters report said. 

A rally in global crude oil and gas prices is a key driving factor behind ONGC’s profitability & any moderation thereof would have a concomitant impact on its operating cash flows even as capex requirements continue to remain high, to retain production from old aging fields, YES Securities said. 

According to the ShareKhan report, Earnings beat estimates for Oil India but missed for ONGC. It prefers Oil India among upstream PSUs as it is a play on both improving oil and gas realisation and recovery in refining margins (holds a 70% stake in Numaligarh Refinery). 

The domestic brokerage increased its FY23-24 earnings estimate to factor in a higher oil price of $85/$75 per bbl and gas price assumption of $7/$6.5 per mmBtu.  

ONGC is trading at 1.7x FY24E EV/EBITDA and 2.4x FY24E P/E, Motilal Oswal said reiterating a Buy rating with a target of Rs 213 per share with a 41 per cent potential upside. Similarly, ICICI Securities, on attractive valuations, recommends a Buy rating with a target of Rs 350 apiece (40 per cent upside).