ONGC - Limited Earnings Growth Prospects: HDFC Securities

HDFC Securities Institutional Equities

Oil and Natural Gas Corporation Ltd. stock rallied 40% and outperformed the Sensex by 21% in CY23-year-to-date, as Brent crude price increased from $81/barrel of oil at the beginning of CY23 to a high $96/bbl seen in Octoer 2023.

However, going ahead we see limited upside to ONGC’s crude price realisation in the current environment of windfall tax (which has not allowed ONGC to earn more than $75/bbl since the levy of the tax on July 01, 2022), slowing global oil demand, strong non-OPEC+ oil production growth and increasing spare OPEC oil capacity.

ONGC’s gas price realisation too is unlikely to change significantly, as APM gas price is frozen till March 2025 and 95% of ONGC’s gas sales fall under APM.

We estimate the stock price factors ~$73/bbl oil price for FY25E. With limited earnings growth, we downgrade ONGC to 'Reduce'.

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