This govt-owned firm's share price will surge by 57% - Should you buy?

Analysts at Prabhudas Lilladher has given a buy rating on ONGC with a target price of Rs 233. Here, analysts believe higher realization of crude oil and gas along with higher other income boost earnings.

The share price of India’s largest oil explorer Oil & Gas Natural Corp (ONGC) on Thursday jumped by nearly 3% on BSE. Photo: Reuters

The share price of India’s largest oil explorer Oil & Gas Natural Corp (ONGC) on Thursday jumped by nearly 3% on BSE. ONGC has clocked an intraday high of Rs 148.30 per piece, however, since then have corrected and is trading at Rs 147.20 per piece up by 2.19% on the index. Interestingly, this state-owned is now seen as a money making magnet ahead, so much, that the company’s investors will reap fruit of massive 57% return in 1 years. Analysts at Prabhudas Lilladher has given a buy rating on ONGC with a target price of Rs 233. Here, analysts believe higher realization of crude oil and gas along with higher other income boost earnings.

Avishek Datta analysts at Prabhudas Lilladher said, “We increase our FY19 earnings to factor in higher realization in the absence of any subsidy burden, in line with 9MFY19 trend. Nevertheless, for FY20/21E we maintain net realization at US$60/bbl, we also tweak our FY21E gas volume assumptions.”

In Q3FY19, management commentary was constructive, as they don’t expect any subsidy burden if these prices were to be at current levels. In this, Datta says, “ ONGC’s earnings are likely to rise on back of higher gas volumes along with improvement in crude oil and gas realization.”

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While the crude oil volumes are likely to be muted till FY21E, management has guided for ramp up in gas volumes from Daman, Vasishta, Cauvery fields and expect overall FY20 gas production of 28.3bcm (FY18 23.4bcm).

Datta adds, “We reiterate our positive stance on ONGC, following significant improvement in crude oil price and gas outlook along with better visibility on production growth. However, ONGC stock has underperformed the broader index due to concerns on subsidy payout on the back of higher crude oil prices and divestment in Government of India share. Price target remains unchanged at Rs223.”

Rs 233 target price would be a new all-time high for ONGC ahead, as currently its 52-week high stands at Rs 194.15 per piece. Hence, this makes ONGC even more appealing stock. At current market price, ONGC is set to rise by over 57% in nearterm.

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