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ONGC Stock: Macquarie Predicts 20% Upside on Volume Recovery

By ThePip DeskONGC Stock: Macquarie Predicts 20% Upside on Volume Recovery

Macquarie maintains ‘Outperform’ on ONGC, targeting Rs 290. Expects 20% upside driven by volume recovery and strong gas potential, despite current production challenges.

Macquarie has reiterated its ‘Outperform’ rating on ONGC, setting a target price of Rs 290, which implies a potential 20% upside from current levels. This optimistic view persists even as the brokerage acknowledges weaker production volumes as a key concern for the state-run explorer.

ONGC’s June-quarter earnings surpassed both Macquarie’s and Visible Alpha’s consensus estimates. This beat was primarily due to favorable crude oil realisations, which offset the impact of declining production volumes.

Key Q1 Performance Figures

  • Standalone EBITDA surged 65% year-on-year, reaching Rs 284 billion, significantly above estimates.
  • Net profit more than doubled, driven by higher crude realisations.
  • Oil production declined 5.5% year-on-year to 5 million metric tonnes.
  • Gas production decreased 2.3% to 4.9 bcm.

Macquarie’s continued bullish stance is rooted in its conviction that ONGC remains attractively valued. The firm anticipates increased production volumes over time, improved gas realisations, and an appealing 8% dividend yield.

However, the inflection point for a comprehensive volume recovery has been pushed to FY28, meaning realisations will be the primary driver of earnings in the immediate term.

Strategic Gas Focus and Investments

  • The gas business is expected to play an increasingly significant role in ONGC’s portfolio.
  • Natural gas realisations are projected to rise to $13.3/mmbtu in the June quarter from $8.1/mmbtu in FY26.
  • Natural gas currently constitutes approximately 38% of ONGC’s nomination gas portfolio.
  • ONGC recently announced an investment of Rs 40,000 crore ($4.2 billion) in the Western Offshore basin.
  • This investment is expected to progressively boost production growth starting from FY28.

Management has indicated that natural gas is projected to contribute 25% of total gas production by FY27. Macquarie believes this development could become a substantial earnings lever if executed effectively, underpinning its long-term growth thesis for ONGC.

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