A 19 per cent drop in the December quarter profit disappointed Oil and Natural Gas Company Ltd (ONGC) investors a bit, even as its revenues beat the consensus estimate. Post a 20 per cent drop in its shares in six months, a few analysts said stock valuations are inexpensive and downside looks limited on the counter. They suggested a 'Buy' on the stock.
But others remained cautious after the oil PSU cut its production guidance for FY26 and FY27 to 44.5 MMTOE and 45.6 MMTOE from 45 MMTOE and 46.2 MMTOE, respectively.
MOFSL said ONGC is currently trading at 5.6 times consolidated FY26 EPS, below its one-year forward estimate. The long-term mean PE for ONGC stands at 6.8 times.
"With FY26E RoE at 14.4 per cent, the current valuations appear attractive. We see limited downside from the current levels as we build in crude prices to average USD70/bbl in FY26/FY27. We value the company at 7 times December 2026 adjusted EPS of Rs 29 and add the value of investments to arrive at our target of Rs 305 (implying 23 per cent upside potential)," MOFSL said.
Antique Stock Broking said even as it has built in a conservative volume growth estimate, it believe ONGC is all set to deliver healthy production growth with the ramp-up of 98/2 field production.
"Oil price and gas price realizations remain strong compared to historical levels, leading to strong free cash flow generation. Production growth receives a big boost with the TSP deal over and above the KG basin driven production growth. This TSP deal will also drive recoverable reserve upside. Premium APM gas and the removal of "windfall tax" are significant re-rating triggers currently ignored by the market, in our view," it said.
This brokerage also believes that ONGC's valuations remain very attractive at just 2.45 times FY27 EV/Ebitda, adjusted for investments. It suggested a target of Rs 336 on the counter.
Nuvama said it remained cautious on ONGC’s revised production guidance, with ONGC missing guidance every year for past six years. It noted that ONGC's past production has consistently fallen at 3.2 per cent CAGR, 1P reserve at 3.3 per cent CAGR.
"Moreover, it is unclear whether BP shall enhance Mumbai High production or purely arrest decline. New Well Gas (NWG) premium pricing, at 12 per cent slope to crude, gives some respite though; expect 3 per cent PBT gain as 10 per cent of nomination gas has been reclassified as NWG. Gains shall be diluted by higher lifting cost though; retain ‘REDUCE’ with target of Rs 233," Nuvama said.