ONGC Share Price: Risk Reward Equation in Favor of Investors?

ONGC share price hit a 52-week high of Rs 279.9 today.

Earlier this month, the company declared a 13.6% YoY fall in its standalone net profit to Rs 95.4 billion (bn) in the December 2023 quarter.

Investor sentiment on Dalal Street has remained buoyant with ONGC gradually expanding its oil and gas production in FY25 from deep-water KG-DWN-98/2 Block, situated off the coast of Bay of Bengal.

The upstream player in early January 2024 had highlighted that this project is on track with final phase of project planning to be completed by June 2024.

The gradual commencement leading to ramping up will result in peak production of 45,000 barrels of oil per day (BOPD) and 10 MMSCMD of gas.

The above development would help to reverse the stagnant production at ONGC - for instance in the first 9 months of the current financial year ONGC's oil production was 15.78 million tonnes, a decline of 2.9% YoY.

Similarly, this player's total gas production declined 4.7% YoY in the first nine months of current financial year.

The gradual expansion in ONGC's oil production in the next financial year comes at a time when there have been increased tensions in the Red Sea, and Brent crude oil prices are currently over US$ 80 per barrel.

Meanwhile, in the third quarter of FY24, ONGC's oil realisations declined 6.4% YoY to US$ 81.6 per barrel while gas price realisations declined 24.2% YoY.

As a result, its standalone revenue from operations fell 9.8% YoY to Rs 347.9 bn in the December 2023 quarter.

Its operating profit margin was broadly flat at 52.4%.

Market Reaction to Results

ONGC has remained an investor's favourite in recent times - the stock has gained nearly 77% over the past one-year vis-a-vis a 17.5% rise in the benchmark.

In addition, ONGC has also declared interim dividends in the current financial year aggregating to Rs 9.75 for every share with a face value of Rs 5.

ONGC trades at a P/E of nearly 8.5 times estimated standalone earnings for financial year ended 31 March 2024.

Meanwhile, global oil majors trade at a P/E of nearly 12 times while Shell trades at 11 times, according to data gathered from international finance web sites.

For more, check out ONGC's financial factsheet and its latest quarterly results.

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