ONGC shares surges 4% after CLSA upgrades stock, with 42% upside

On January 7, the shares of Oil and Natural Gas Corporation (ONGC) rallied 4.3%, reaching a day's high of Rs 265.30 on the Bombay Stock Exchange (BSE). This increase followed an upgrade from the global brokerage firm CLSA, which raised its rating for the stock to "High Conviction Overweight-PF" and set a price target of Rs 360. 

CLSA has maintained a bullish outlook on ONGC, indicating a potential upside of nearly 42% from the company's closing price on the previous Monday. The brokerage noted that the Eastern Offshore Field is expected to ramp up to peak production, which will significantly enhance ONGC's domestic oil and gas output by approximately 10% and 20%, respectively, by the end of 2025.

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Additionally, CLSA highlighted that new gas discoveries and a continued increase in gas share through well interventions will likely improve blended gas realizations.

Furthermore, removing the windfall tax could allow ONGC to achieve oil price realizations above $75 per barrel if crude oil prices recover. Despite these positive developments, ONGC is currently trading at a significant discount compared to its historical valuations and those of its peers. The brokerage also highlighted that the stock offers an attractive dividend yield of 6%. 

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Additionally, Jefferies, another brokerage house, pointed out that a potential increase in KG Basin production in Q4 FY25/Q1 FY26 could be a crucial catalyst for the stock. According to Jefferies, the 30% decline in the stock over the past three months seems excessive, presenting a buying opportunity. 

Moreover, the brokerage noted that recent regulatory actions are likely to enhance profitability. Although ONGC's oil production is expected to decrease by 4.7% year-on-year in Q3, gas production is anticipated to remain steady.

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