ONGC stock jumps almost 5% as Jefferies sees over 50% upside; here's why the brokerage retains bullish outlook

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Shares of PSU firm Oil and Natural Gas Corporation (ONGC) jumped almost 5 percent to 271.10 apiece in intra-day deals on Tuesday, June 11, after global brokerage house Jefferies retained its bullish outlook on the stock as the central government’s policy continuity should keep the oil PSU’s profitability elevated. It stated that ONGC’s profitability is to stay elevated compared to past averages.

Following the announcement of the election verdict on June 4, where the BJP fell short of the 272 mark needed for a majority, the oil major’s shares tanked almost 17 percent on that day. Before today’s gain, the stock was down almost 9 percent for the month of June. Even though it has recovered since then, Jefferies believes that this correction is excessive and presents an appealing entry opportunity for investors.

The brokerage has a target price of 390 for ONGC, implying a 50.5 percent upside from its previous close.

According to the brokerage, ONGC’s ramp-up in KG basin production in Q3FY25 and accretion to profitability are key triggers to monitor going ahead.

Meanwhile, in an earlier note, Jefferies also highlighted that ONGC’s valuation is currently trading at a significant discount to the Nifty compared to its long-term average.

The stock has already rallied 68 percent in the last 1 year and over 26 percent in 2024 YTD, giving positive returns in 5 of the 6 months so far in the current calendar year.

Including today’s rise, the stock has gained 1.5 percent in June so far after a 6.5 percent fall in May. Meanwhile, it gave positive returns in the first 4 months of the year, advancing 5.5 percent in April, 1.3 percent in March, 4.5 percent in February and 23.5 percent in January.

The stock hit its 52-week high of 292.95 on May 3, 2024, and a 52-week low of 152.55 on June 12, 2023. From its previous close of 259.10, it is 11.5 percent away from its year high and 70 percent higher from its year low.

In FY24, ONGC announced its highest-ever standalone net profit of 40,526 crore, while its consolidated net profit reached a record high of 57,101 crore. Additionally, the company’s crude oil production experienced a quarterly surge of 2.4 percent to 5.359 MMT in Q4 FY24.

Post its earnings, Nomura upgraded ONGC’s stock from ‘Reduce’ to ‘Buy’ and increased its price target to 290 from 140. The firm anticipates ONGC benefiting in the forthcoming years from favorable cess and royalty structures, exemption from windfall taxes on KG 98/2 volumes, and an increasing share of gas volumes.

Additionally, the brokerage also has raised its estimates for ONGC’s Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) by 5 percent for FY25 and by 14 percent for FY26 incorporating higher gas prices for new wells or discoveries.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Published: 11 Jun 2024, 01:00 PM IST