Oil & gas stocks ONGC, Oil India surge up to 4% as crude hits 2-month high; brokerages see up to 56% upside

Shares of oil exploration & production companies such as Oil and Natural Gas Corporation (ONGC) and Oil India zoomed up to 4 per cent on the BSE intraday during Tuesday’s trade in an otherwise volatile market as crude oil prices touch a two-month high.   

Individually, state-owned Oil India soared 4 per cent to touch a day’s high of Rs 233.4 per share and ONGC jumped 3.5 per cent to also hit a day’s high level of Rs 174.4 per share on the BSE intraday. The stock of the latter company was among the top gainers on Nifty50 intraday today. 

According to a Reuters report, “Oil prices extended gains on Tuesday as they breached $120 per barrel, after the European Union agreed to slash oil imports from Russia, fuelling worries of a tighter market already strained for supply.” 

Brent crude for July, which expires on Tuesday, rose $1.13 to a fresh two-month top of $122.80 a barrel at 0359 GMT. West Texas Intermediate (WTI) crude futures were trading at $118.25 a barrel, up $3.18 from Friday`s close.  

ONGC and Oil India have outperformed the Sensex by 31/75 per cent respectively, over the last twelve months, as Brent crude price increased by 68 per cent, HDFC Securities said and expected the outperformance to continue.   

Oil prices soared in March to their highest since 2008 and are up over 55 per cent so far this year. They should draw further support as demand from China is expected to pick up after the easing of COVID-19 curbs, the Reuters report also stated. 

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. 

ONGC is trading at 1.7x FY24E EV/EBITDA and 2.4x FY24E P/E, Motilal Oswal reiterating a Buy rating with a target of Rs 213 per share with a 48 per cent potential upside.  

Similarly, ICICI Securities believe steady production growth, upside risk to price, GRM estimates, and attractive valuations make Oil India’s risk-reward compelling at current levels. It reinitiates a Buy coverage with a target price of Rs 350 per share (56 per cent upside).