Production growth after more than a decade key for ONGC's outperformance, say analysts

The management of state-run upstream oil explorer ONGC Ltd. told analysts in a call that the company expects to commence oil production from the KG basin in November 2023 and gas from May and June 2024.

This will increase the company's oil production from 10,000 barrels to 45,000 barrels and gas production to 10 mmscmd by financial year 2025.

ONGC's management also said that the company is exploring two petrochemical projects which will entail investments to the tune of ₹1 lakh crore through the Joint Venture mode.

The new gas fields, according to ONGC, will attract a 20% premium over the APM prices. Around 6% to 8% of ONGC's gas production every year comes from new wells.

Brokerage firm Motilal Oswal reiterated its buy recommendation on the stock with a price target of ₹235, which implies a potential upside of up to 18% over the next 12 months.

Another firm with a bullish stance on the stock is Morgan Stanley, who is overweight on the stock with a price target of ₹216, which implies a potential upside of 9% from current levels.

Morgan Stanley mentioned that production growth after more than a decade of decline is key for ONGC's next leg of outperformance.

ONGC reported a 2% quarter-on-quarter rise in its standalone net profit to ₹10,216 crore for the July-September quarter as against ₹10,015 in the June quarter. The profit, however, was lower than a CNBC-TV18 poll estimate of ₹11,034 crore.

ONGC's margins declined 530 basis points sequentially to 52.2% in the September quarter from 57.5% in the June quarter.

Shares of ONGC are trading a percent higher on Thursday at ₹201.60. The stock is now up 34% so far in 2023.