ONGC Stocks: Upstream PSU Companies Shine Amid Oil Surge; Oil India and ONGC shares could see a 53-58% rise

Soaring fuel prices since Russia’s invasion of Ukraine in late February may have emerged as a major risk to India’s inflation and trade deficit, but upstream state oil companies are well currently placed, according to analysts.

“The stock prices of the upstream PSU companies as

and Oil India have risen 13-46% in the past six months despite a 67% rise in the price of Brent crude and a 110% rise in Administered Price Mechanism (APM) gas on concerns over windfall tax gains,” said Global Financial Advisory. said the company Elara Capital.

While the Organization of the Petroleum Exporting Countries plans to increase supply by 0.65 million barrels per day in July and August, sanctions against Russia have taken 1 million barrels per day away from Russia, making thereby driving up prices, the firm said.

Elara Capital expects domestic gas prices to be revised upwards by $9 per MMBTU (Metric Million British Thermal Unit) by the end of October 2022; a key factor contributing to the positive view of UAPs upstream.

“OPEC’s supply between February and April only increased by 0.1 mmbpd against a required increase of 0.8 mmbpd, indicating its inability to stimulate supply growth. Even if the war were to end, sanctions against Russia would not be lifted in the short term, which would reinforce the rise in oil prices,” the firm said.

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The firm considers itself attractive with a margin of safety. ONGC valuation prices in a barrel of crude oil at $65, providing a considerable margin of safety even if oil prices were to correct 30% from their current levels, Elara said.

According to the company, by the end of the financial year, the sensitivity of ONGC’s earnings per share to a change of $10 per barrel in crude oil prices is 6.7 rupees.

On Oil India, Elara expressed a lot of optimism, saying all the engines of the state-owned giant were running with the Numaligarh refinery upstream.

“OINL is taking advantage of high crude oil prices and Numaligarh Refinery (NRL) GRM as its product line is 70% diesel for which cracks have reached >$40/barrel,” Elara said.


India’s crude oil valuation prices at $60 per barrel and the sensitivity of earnings per share at the end of the financial year 23 to a fluctuation of $10 per barrel in oil prices is 7.3 rupees, the company said.

Oil India has beaten most of the targets set by brokerages in recent days due to improved margins driven by higher crude oil prices, with the stock having generated more than 100% return over the past few days. last year.

On Thursday, the stock hit a 52-week high by jumping more than 8%.

Haitong Securities, in its monthly report on the hydrocarbon sector, said the gross refining margins (GRM) of refining companies break all barriers.

Elara Capital increased the EPS of ONGC and Oil India for the end of FY23 from 69 to 83% and from 50 to 61% by the end of the following financial year based on the increase in crude and gas prices and gross refining margins.

“We assume Brent crude is at $95/bbl for FY23E and $90/bbl for FY24E (from $75/bbl) and APM at $7.5 per MMBtu for FY23E and $7.2 per MMBtu for FY24E (from $5.2/MMBtu),” Elara said.

The advisory firm reiterated its buy call for ONGC and Oil India and raised the target price for the former to Rs 255 and that for Oi India to Rs 469 on the basis of higher EPS and a weaker long-term domestic exchange rate at 76.5/$1 from 74.5. /$1.

The targets imply a 53-58% rise in shares from current levels, Elara Capital said.

“We are evaluating ONGC using a DCF method, assuming a WACC of 10% (unchanged). Our implied value of CGSB & OINL 1P reserves is $5.3/boe versus $4.9/boe. We value OINL’s 69.6% stake in NRL at INR 99/share, assuming 5.0x FY23E EBITDA. »

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Garland K. Long