Stock market today: ONGC share price gained more than 3% to scale 52 week highs. The earnings outlook for the upstream Oil and Gas producer remains strong on stable realisations and expected uptick in oil and gas production. Strong dividend yield makes them attractive investment bets too.
Oil and Natural Gas Commission ONGC) share price with gains of more than 3% was amongst top Nifty-50 gainers as it scaled 52 week highs on Thursday. The improved earnings outlook for upstream oil and Gas producer has been helped by better oil price realisations outlook, in spite of wind fall taxes applied by the government. The rising gas production and realizations also bode well while handsome dividend yields is amongst the other key positives.
Not Surprising that ONGC share price has gained more than 47% in last one year and even Oil India share price has seen gains of 84.3%
Analysts at Antique Stock Broking said that the ONGC and Oil India remain among the cheapest upstream stocks globally despite the 30%-50% rally in the last six months. They believe that the current valuations do not fully reflect the jump in realization of both oil and gas over the last 6-18 months and the resultant cash flow.
The realisation outlook started improving with higher crude prices, Post implementation of windfall taxes by the government while the realisations came lower however analysts anticipate them to stay at $70-75 a barrel, which in itself is earnings accretive as per analysts.
Windfall-adjusted oil realizations sustained at $75 a barrel during Q3 estimate analysts at Emkay Global Financial Services .
Besides there are expectations on rise in production that will aid earnings growth further.
ONGC is expected to deliver an oil production CAGR (compound annual growth rate) of 1.5% and a gas production CAGR of 3.7% over the next three years, primarily driven by the KG basin and IOR/ EOR projects said analysts at Antique. Oil India has a significantly higher CAGR of 3% and 5% respectively, with potential to surprise on the upside post the Northeast gas grid and NRL commissioning (guidance is higher at 6%–12%), they added.
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This keeps analysts positive on the earnings outlook and hence bullish on stocks.
Both companies are set to deliver significant production growth and incremental investments are likely to be value accretive, said analysts at Antique.
The strong dividend yield makes the stocks more attractive. ONGC and Oil India offer dividend yield of 5.5% and 5.4% respectively based on FY22 and FY23 dividend per share announced by the companies.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions
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