Jefferies initiates 'buy' call on ONGC, foresees over 47% upside

A sharp rise or drop in the price of crude can be a risk for ONGC, Jefferies has said

Shares of ONGC surged over 5 percent to Rs 279 per share on April 15 after Jefferies analysts initiated a "buy" call on the counter amid attractive valuations, with a target price of Rs 390 a share, implying an upside of 47 percent from the current levels.

According to Jefferies, the Oil and Natural Gas Commission (ONGC) stock is trading at a steeper discount to the benchmark Nifty compared to its long-term average. "The valuation does not capture adequately due to its sharp discount as against the Nifty," they said in a note.

The brokerage expects the state-owned company ONGC to generate strong free cash flows and reduce consolidated net debt, which would lead to a profitable growth over FY24-26. "In the past, reforms in crude and gas pricing impacted the company's profitability above past decade averages. Going ahead, we believe that a sharp rise or fall in crude prices could be potential risks for ONGC," they added.

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So far this year, ONGC has gained over 29 percent against a 3.6 percent rise in the 50-stock Nifty. ONGC shares hit a 52-week high of Rs 284 on March 5.

For the March quarter, Prabhudas Lilladher analysts expect ONGC's operating profit to improve marginally with net oil realisation at $77.5 a barrel and gas realisation at $6.5 per mmBtu.

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Analysts expect the company's adjusted profit to jump over three-fold year-on-year (YoY) to Rs 796 crore in the March quarter, while sales may decline by 1.6 percent YoY to Rs 3,572 crore.

Earlier, analysts at Motilal Oswal, too, retained their “buy” call on ONGC, with a target price of Rs 315.

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