ICICI Securities’ Probal Sen Remains Positive On ONGC; Here's Why

ICICI Securities is positive on Oil & Natural Gas Corporation (ONGC) Ltd. and is not considering a re-rating even if the company misses production targets for FY25, the brokerage firm’s senior research analyst (institutional equities), Probal Sen, has said.

In an interview with NDTV Profit, Sen outlined three key reasons why ICICI Securities remains bullish on ONGC. He highlighted that although the company has missed its production guidance for over six years, there is an expectation of a gradual improvement in production trends moving forward.

Sen stated that the company’s valuation is expected to remain attractive, and its realisations will continue to stay elevated.

“We continue to believe that this time around, it will be slightly different in terms of production trends. Valuations continue to remain very comfortable. We also believe, in terms of realisations, it's important to remember that even at oil realisations of $74 to $76 a barrel, that is still about $15 plus higher than the last decade average that they have achieved,” he said.

“So that in itself provides a lot of leeway in terms of cash flows and return ratios,” the senior analyst added.

Additionally, ONGC’s legacy gas-free production will be eligible for a higher price than currently, as it can now charge a 20% premium on gas from new wells.

“Secondly, with a lot of legacy gas-free production also gradually moving to the premium gas price formula—given that, with the new regime that has been put in place—any well interventions, new wells, even on existing fields, will be counted towards incremental gas production. Therefore, this will be subject to, or be eligible for, a 20% higher price than the current formula,” Sen said.

“So if you look at realisations, those will continue to improve. And lastly, the contribution of HPCL is something that cannot be ignored in the overall consolidated earnings,” he added.

According to Probal Sen, ICICI Securities will not consider a re-rating of ONGC Ltd. based on production targets, as the company has "consistently stated" that production will be ramped up starting from the next fiscal.

The top executive mentioned that even if ONGC delivers 50-60% of their production guidance, ICICI Securities will be comfortable with the company.

“If they manage to continue to grow and deliver on the production front even to 50% or 60% of the guidance, I think the valuations anyway are discounting pretty much any improvement. So we would be very comfortable, still being a buyer on the new,” he said.

ONGC Ltd. shares touched an intraday high of Rs 262 apiece on the NSE on Tuesday, surging 2.45%. The stock was up at Rs 259.95 at 1:30 pm, while benchmark Nifty 50 was also up 0.3% at 23,160.30.