Motilal Oswal has upgraded Oil and Natural Gas Corporation (ONGC) to a 'Buy' rating, citing expected volume growth and higher global crude oil price forecasts. The firm projects a significant rise in the company's profit for FY27 and FY28 due to these anticipated trends. Investors should monitor whether these oil price assumptions and production targets are met.
Motilal Oswal Financial Services has revised its outlook on state-owned energy major Oil and Natural Gas Corporation (ONGC), citing a more favorable view on the company's growth and pricing environment. The brokerage firm has assigned a target price of INR 288 per share, largely driven by the expectation of higher crude oil prices and increased production volumes in the coming years.
Impact of Global Crude Price Assumptions
A key pillar of this revised outlook is the change in global oil price expectations. Due to delays in the normalization of commercial crude oil inventories in OECD countries, analysts at Motilal Oswal believe that prices for Brent crude will stay higher for longer. The firm has raised its price estimates to USD 84.2 per barrel for FY27 and USD 75 per barrel for FY28. These projections are notably higher than previous estimates of USD 75 and USD 65, respectively. Because ONGC's profitability is directly tied to the price it receives for its crude oil, higher global prices typically support stronger profit margins and total profit after tax. The brokerage projects that this price environment could lead to a 9% rise in consolidated profit for FY27 and an 18% increase for FY28.
Production and Valuation Context
Beyond price trends, the brokerage is factoring in a projected volume growth of approximately 2.6% for the company, which includes a 1.6% rise in oil output and a 3.7% increase in gas production. In terms of valuation, the firm values the standalone business at 6.5 times its expected earnings per share as of December 2027. Additionally, the analysis assigns a 25% discount to the current market value of ONGC's various investments and calculates the stake in its subsidiary, ONGC Videsh Ltd (OVL), at 0.5 times its book value.
While this outlook is positive, investors should remain aware of the risks inherent in the oil and gas sector. ONGC’s financial health is sensitive to government policies, such as the windfall tax on domestic crude production and changes in natural gas pricing regulations. Furthermore, exploration and production projects are capital-intensive and subject to risks of technical delays or cost overruns. The actual realization of the projected profit growth will depend on whether global demand and supply dynamics remain consistent with the higher crude price assumptions mentioned by the brokerage. Investors should also track the company's actual production volume data in upcoming quarterly filings to see if the firm is meeting its growth targets.