Retaining a buy rating on ONGC and Oil India, Motilal Oswal has raised target prices on both stocks to ₹210 and ₹320, respectively.
The brokerage has raised FY23 and FY24 forecasts on oil prices by $5 per barrel to $70 and $65 per barrel, respectively, although it expects crude to hover in the $60-$70 per barrel range in the long run.
The brokerage has also rationalised Brent crude oil prices at $85 per barrel for the fourth quarter of FY22 and built in expectations of domestic gas prices at $6.6/USD4 mmBtu (million metric British thermal units).
Because of the change in assumptions, the brokerage has raised earnings estimates on ONGC by 27% for FY23 and by 15% for FY24. For Oil India, the brokerage has raised earnings estimates for FY23 by 14% and by 2% for FY24.
Raising the target price on ONGC to ₹210 from ₹195, Motilal Oswal said ramp-up in oil and gas production has been a sore issue for investors but the rise in oil and gas prices is likely to lead to ONGC’s adjusted profit after tax for FY24 being 1.7 times that of FY21.
Ramp-up of production from the KG basin could be another positive trigger for ONGC shares, said Motilal Oswal.
The brokerage has raised the target price on Oil India to ₹320 from ₹315.
Shares of ONGC ended down 0.24% at ₹165.10 on Tuesday, having gained 5% in the last one month. Oil India’s shares are up 28% in the last one month. The stock ended up 3.7% at ₹225 on Tuesday.
ONGC’s shares have gained 84% in the past one year while Oil India’s shares more than doubled in the same period.
“A $5/barrel rise in Brent crude oil prices would change the FY23 EPS of ONGC/Oil India by 7%/12%,” said Motilal Oswal.
