Brokerages are feeling positive about Oil and Natural Gas Corporation (ONGC) after the government announced higher prices for new gas wells.
What Happened: ONGC mentioned on Monday that the Ministry of Petroleum and Natural Gas has set a 20% higher price for gas produced from new wells or projects. Earlier, the price for domestic gas was based on 10% of the Indian crude oil price. The new prices will affect the oil fields of ONGC and Oil India.
ONGC is currently working on two projects: the Daman Upside Development project and the development of four contract areas under DSF-II, which will cost about ₹13,800 crore in total.
Brokerage Views: Jefferies has a “buy” rating on ONGC and increased its target price to ₹420, while also raising its earnings estimates for FY26 and FY27 by 2% to 3%. They believe that ONGC’s stock is still a good deal since it trades at a lower price compared to the Nifty 50 index. They see potential for growth due to increased production from the KG Basin and the removal of certain taxes.
Citi also has a “buy” rating with a target price of ₹350. They noted that this new pricing will apply to 10% of ONGC’s current gas production, which is expected to increase to 20-25% in the next 2-3 years.
ONGC’s average gas price could go up from $6.5 per metric million British thermal unit in FY24 to $7.5 in FY27. They mentioned that every $1 increase in gas price could boost earnings per share by 7%-8%.
Price Action: ONGC’s shares increased by 0.10% to ₹341.65 on Tuesday morning.
