Motilal Oswal has upgraded Oil and Natural Gas Corporation (ONGC) to a positive rating, citing better production outlooks and reasonable valuations. The brokerage expects higher oil prices to support earnings through 2028. Investors may monitor production timelines at the KG-98/2 field and the impact of government energy policies on future price realizations.
Motilal Oswal Financial Services has initiated a positive outlook on Oil and Natural Gas Corporation (ONGC), pointing to a combination of favorable valuations and expected improvements in production volume. The brokerage firm noted that the stock is trading below its historical average, which may offer value for long-term investors tracking the energy sector.
Production Outlook and Key Projects
A central part of the growth case is the expected compound annual growth rate of approximately 2.6% in total production volumes between FY26 and FY28. This growth is projected to come from a combination of oil and natural gas output. The company’s focus on the Daman Upside Development Project, which has already started operations, and the ongoing expansion of the KG-98/2 offshore field are expected to contribute to this performance. As these facilities reach higher operational levels, they are anticipated to support the company’s objective of enhancing domestic energy output.
Market Factors and Regulatory Impact
The positive view is also supported by revised estimates for Brent crude oil prices, with the brokerage projecting $84.2 per barrel for FY27 and $75 per barrel for FY28. These estimates are based on the expectation that global oil inventories will take time to normalize, potentially keeping prices at levels that support profitability. Additionally, the company’s dividend yield remains a point of interest for investors, with expectations of a payout ratio near 40% for FY27. Changes to the government's new-well gas policy are also expected to allow for better price realizations on a larger portion of the company's natural gas production.
Risks and Monitoring
While the outlook is positive, the company faces inherent business risks that shareholders should track. The profitability of ONGC is sensitive to international crude oil prices; a sustained drop in these prices would affect margins. Furthermore, the execution of complex offshore projects like KG-98/2 carries a risk of delays or cost increases. Investors should also stay alert to changes in government regulations, particularly those concerning windfall taxes or adjustments to gas pricing mechanisms, which have historically impacted the company's financial flexibility. The final performance will depend on the actual pace of production ramp-up and the stability of global energy markets.