ONGC share price jumps over 5% in trade to hit an intraday high of Rs 279.25 against its previous close of Rs 265.70 after brokerage firm Jefferies initiated coverage on the stock with a Buy rating, setting a price target of Rs 390 per share. The initiation comes with a comprehensive analysis of ONGC’s recent performance and future prospects, shedding light on key factors influencing the investment decision.
Reforms in crude and gas pricing have propelled ONGC’s profitability beyond levels witnessed in the past decade, Jefferies said in its latest note.
The brokerage also points out that this aspect of ONGC’s financial health is not adequately reflected in the current valuation. Furthermore, the brokerage said that despite the improved profitability and strong free cash flow generation, ONGC’s stock is trading at a steeper discount to Nifty compared to its long-term average. Jefferies suggests that the current valuation does not fully capture the positive trajectory of ONGC’s financial performance.
Moreover, Jefferies expresses confidence in ONGC’s domestic production, foreseeing a return to growth over the period from FY24 to FY26. The report anticipates profitability in the KG basin production segment, even in the face of higher operating expenses.
The analysis assumes a conservative 1% production growth over FY24 to FY26, without banking on a resolution in ONGC Videsh. Furthermore, Jefferies predicts a notable reduction in the consolidated net debt-to-equity ratio from 0.32x to 0.16x over the same period.
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